The Impact of New Deal Expenditures on Local Economic Activity: An Examination of Retail Sales, 1929-1939

Price V. Fishback, William C. Horrace, Shawn Kantor

NBER Working Paper No. 8108
Issued in February 2001
NBER Program(s):Program on the Development of the American Economy

**Revised version 2005**

This paper empirically examines the New Deal's impact on local economic activity, as measured by retail sales, during the 1930s. Using a recently-uncovered data set that describes over 30 federal New Deal spending, loan, and mortgage insurance programs across all U.S. counties from 1933 to 1939, we estimate how the various New Deal programs that were designed to accomplish different objectives influenced retail spending. Our empirical approach accounts for both the simultaneity between New Deal allocations and economic activity and the geographic spillovers that likely resulted when spending in one county may have affected the economies of its neighbors. We find that New Deal spending on public works tended to promote retail sales in both the county where the money was spent and in contiguous neighbors, while spending on work relief increased economic activity in the county where the money was spent but at the expense of neighboring counties. Agricultural spending that limited production was associated with lower retail spending. New Deal loan programs appear to have had little or a somewhat negative effect. Finally, increases in the value of mortgages insured by the Federal Housing Administration had a strong positive effect on local economic growth during the Depression.

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Document Object Identifier (DOI): 10.3386/w8108

Published: Fishback, Price V., William C. Horrace and Shawn Kantor. "Did New Deal Grant Programs Stimulate Local Economies? A Study Of Federal Grants And Retail Sales During The Great Depression," Journal of Economic History, 2005, v65(1,Mar), 36-71.

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