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The persistent effects of place-based policy: Evidence from the West-German Zonenrandgebiet

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  • Maximilian von Ehrlich
  • Tobias Seidel

Abstract

Using a natural experiment from Germany, we show that temporary place-based subsidies generate persistent effects on economic density. We identify employment and capital formation as main channels for higher income per square kilometer. As the spatial regression discontinuity design allows us to control for all spatially-continuous determinants of agglomeration (e.g. home-market effects, knowledge spillovers), we attribute an important role to capital formation in explaining persistent spatial patterns of economic activity. However, estimates of externalities at the treatment border point to small net effects of the policy. We find strong evidence that pre-treatment land owners have benefitted substantially from the program and transfers show larger effects in high-density places. Finally, accounting for regional subsidies raises the causal effect of market access for economic development as identified in Redding and Sturm (2008) by about 45 percent.

Suggested Citation

  • Maximilian von Ehrlich & Tobias Seidel, 2015. "The persistent effects of place-based policy: Evidence from the West-German Zonenrandgebiet," Diskussionsschriften dp1506, Universitaet Bern, Departement Volkswirtschaft.
    • Handle: RePEc:ube:dpvwib:dp1506
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    1. repec:eee:deveco:v:130:y:2018:i:c:p:173-189 is not listed on IDEAS
    2. repec:anr:reveco:v:9:y:2017:p:21-58 is not listed on IDEAS
    3. Ochsner, Christian & Roesel, Felix, 2016. "Migrating Extremists," Annual Conference 2016 (Augsburg): Demographic Change 145632, Verein für Socialpolitik / German Economic Association.
    4. Stephen J. Redding & Esteban Rossi-Hansberg, 2017. "Quantitative Spatial Economics," Annual Review of Economics, Annual Reviews, vol. 9(1), pages 21-58, September.
    5. Guglielmo Barone & Francesco David & Guido de Blasio, 2016. "Boulevard of broken dreams. The end of the EU funding (1997: Abruzzi, Italy)," Temi di discussione (Economic working papers) 1071, Bank of Italy, Economic Research and International Relations Area.
    6. Christian Ochsner, 2017. "Dismantled once, diverged forever? A quasi-natural experiment of Red Army misdeeds in post-WWII Europe," ifo Working Paper Series 240, ifo Institute - Leibniz Institute for Economic Research at the University of Munich.
    7. Michael Wyrwich, 2018. "Migration restrictions and long-term regional development: evidence from large-scale expulsions of Germans after World War II," Jena Economic Research Papers 2018-002, Friedrich-Schiller-University Jena.
    8. Barone, Guglielmo & David, Francesco & de Blasio, Guido, 2016. "Boulevard of broken dreams. The end of EU funding (1997: Abruzzi, Italy)," Regional Science and Urban Economics, Elsevier, vol. 60(C), pages 31-38.
    9. Christian Ochsner & Michael Weber, 2016. "Die Wirtschaftsdynamik beiderseits der ehemaligen innerdeutschen Grenze," ifo Dresden berichtet, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 23(05), pages 15-23, October.
    10. Eva Dettmann & Matthias Brachert & Mirko Titze, 2016. "Identifying the Effects of Place-Based Policies - Causal Evidence from Germany," CESifo Working Paper Series 5901, CESifo Group Munich.
    11. Titze, Mirko & Dettmann, Eva & Brachert, Matthias, 2016. "Identifying the effects of place-based policies – Evidence from Germany," Annual Conference 2016 (Augsburg): Demographic Change 145735, Verein für Socialpolitik / German Economic Association.

    More about this item

    Keywords

    Place-based policy; Regional policy; Economic geography; Persistence; Regression discontinuity; Locational advantage; Land value capitalization;

    JEL classification:

    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • H41 - Public Economics - - Publicly Provided Goods - - - Public Goods
    • H54 - Public Economics - - National Government Expenditures and Related Policies - - - Infrastructures
    • O15 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Economic Development: Human Resources; Human Development; Income Distribution; Migration
    • O18 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Urban, Rural, Regional, and Transportation Analysis; Housing; Infrastructure
    • R12 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Size and Spatial Distributions of Regional Economic Activity; Interregional Trade (economic geography)

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