Poor soil as a fertile breeding ground: the role of historical agricultural specialization for the persistence of regional differences in crafts

There is a growing literature that explores the persistence of regional economic activities over time. We contribute to the literature by focusing on the regional concentration of a traditional industry. To be more precise, we examine the regional persistence of the crafts sector over a period of more than 100 years. We use historical data on the density of crafts people across regions. Our analysis on data from Germany demonstrates a strong persistence of regional differences in the concentration of crafts people in rural areas and no persistence in urban areas. To rule out endogeneity, we apply an instrumental variable approach and instrument the crafts density with the historical agricultural specialization of regions. This strategy is grounded in the idea that individuals in regions with a low quality of soil were more likely to take up other commercial activities like crafts occupations while this historical pattern is unlikely to directly affect specialization in crafts today.