Local Economic Development, Agglomeration Economies, and the Big Push: 100 Years of Evidence from the Tennessee Valley Authority / Patrick M. Kline, Enrico Moretti.

Format:

Book

Author/Creator:

Kline, Patrick M.

Contributor:

National Bureau of Economic Research.

Moretti, Enrico.

Series:

Working Paper Series (National Bureau of Economic Research) no. w19293.

NBER working paper series no. w19293

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Other Title:

Local Economic Development, Agglomeration Economies, and the Big Push

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2013.

Summary:

We study the long run effects of one of the most ambitious regional development programs in U.S. history: the Tennessee Valley Authority (TVA). Using as controls authorities that were proposed but never approved by Congress, we find that the TVA led to large gains in agricultural employment that were eventually reversed when the program's subsidies ended. Gains in manufacturing employment, by contrast, continued to intensify well after federal transfers had lapsed - a pattern consistent with the presence of agglomeration economies in manufacturing. Because manufacturing paid higher wages than agriculture, this shift raised aggregate income in the TVA region for an extended period of time. Economists have long cautioned that the local gains created by place based policies may be offset by losses elsewhere. We develop a structured approach to assessing the TVA's aggregate consequences that is applicable to other place based policies. In our model, the TVA affects the national economy both directly through infrastructure improvements and indirectly through agglomeration economies. The model's estimates suggest that the TVA's direct investments yielded a significant increase in national manufacturing productivity, with benefits exceeding the program's costs. However, the program's indirect effects appear to have been limited: agglomeration gains in the TVA region were offset by losses in the rest of the country. Spillovers in manufacturing appear to be the rare example of a localized market failure that cancels out in the aggregate.

Notes:

Print version record

August 2013.