Local Economic Development, Agglomeration Economies, and the Big Push: 100 Years of Evidence from the Tennessee Valley Authority
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.
We thank the referees, two editors, Daron Acemoglu, Raj Chetty, Janet Currie, Donald Davis, Yuriy Gorodnichenko, Chang-Tai Hsieh, Rick Hornbeck, Costas Meghir, Evan Rawley, Stephen Redding, Chris Udry and seminar participants at Berkeley, Columbia, UC Davis, the Econometric Society Summer Meetings, Harvard, Humboldt, LSE, Maryland, Michigan, the NBER Summer Institute, Paris Sciences Po, Pompeu Fabra, Princeton, Stanford, Tinbergen, Yale, Wharton, Wisconsin, UBC, and UCLA for useful comments. We are grateful to Andrew Garin for pointing out a mistake in an earlier version of this article. We thank Olivier Deschenes and Alan Barreca for providing us with some of the data. We gratefully acknowledge the Berkeley Center for Equitable Growth for funding support. We thank Michel Serafinelli, Valentina Paredes, Juan Pablo Atal, Edson Severnini and Owen Zidar for excellent research assistance. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research.
Enrico Moretti, 2014. "Local Economic Development, Agglomeration Economies, and the Big Push: 100 Years of Evidence from the Tennessee Valley Authority," The Quarterly Journal of Economics, Oxford University Press, vol. 129(1), pages 275-331. citation courtesy of