Reconstruction Aid, Public Infrastructure, and Economic Growth
69 Pages Posted: 17 Apr 2018 Last revised: 16 Sep 2018
Date Written: September 6, 2018
The Marshall Plan (1948-1952), sponsored by the US with the goal of helping Europe recover from WWII, has been the largest simultaneous aid transfer in history. This paper estimates its effects on the postwar economy recovery in Italy, the third largest beneficiary. It exploits plausibly exogenous differences between Italian provinces in the amount of reconstruction grants and, therefore, the share of new public infrastructure—mainly roads and railways—built through the Marshall Plan. Provinces that could modernize a larger portion of their infrastructure stock experienced higher increases in agricultural production, especially for perishable crops that benefitted the most from an efficient transportation system. Agricultural firms in these areas also invested more in motorized machines that decreased the employment of manual labor. In the same provinces, we observe more entry of small firms in the industrial sector, as well as a larger expansion of the industrial and service workforce.
Keywords: international aid, economic growth, reconstruction grants, Marshall Plan, innovation
JEL Classification: H84, N34, N44, O12, O33
Suggested Citation: Suggested Citation