The Persistent Effects of Place-Based Policy: Evidence from the West-German Zonenrandgebiet

58 Pages Posted: 9 Jun 2015

See all articles by Maximilian von Ehrlich

Maximilian von Ehrlich

Ludwig Maximilian University of Munich (LMU) - Center for Economic Studies (CES)

Tobias Seidel

University of Duisburg-Essen - Mercator School of Management

Date Written: May 31, 2015

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. homemarket 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 that transfers have shown 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.

Keywords: place-based policy, regional policy, economic geography, persistence, regression discontinuity, locational advantage, land value capitalization

JEL Classification: H250, H400, H540, O150, O180, R120

Suggested Citation

von Ehrlich, Maximilian and Seidel, Tobias, The Persistent Effects of Place-Based Policy: Evidence from the West-German Zonenrandgebiet (May 31, 2015). CESifo Working Paper Series No. 5373. Available at SSRN: https://ssrn.com/abstract=2615729

Maximilian Von Ehrlich

Ludwig Maximilian University of Munich (LMU) - Center for Economic Studies (CES) ( email )

Schackstr. 4
Munich, 80539
Germany

Tobias Seidel (Contact Author)

University of Duisburg-Essen - Mercator School of Management ( email )

Lotharstra├če 65
Duisburg, Nordrhein-Westfalen 47057
Germany

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