Working Paper: NBER ID: w19293
Authors: Patrick M. Kline; Enrico Moretti
Abstract: 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.
Keywords: Tennessee Valley Authority; agglomeration economies; regional development; economic policy
JEL Codes: J0; R1; R12
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| TVA (H25) | agricultural employment (J43) |
| end of TVA subsidies (H25) | agricultural employment (J43) |
| TVA (H25) | manufacturing employment (L60) |
| shift from agriculture to manufacturing (O14) | aggregate income in TVA region (R10) |
| TVA (H25) | national manufacturing productivity (L69) |
| TVA (H25) | public infrastructure improvements (H54) |
| public infrastructure improvements (H54) | national manufacturing productivity (L69) |
| agglomeration economies in manufacturing (R32) | manufacturing productivity (L23) |
| losses in rest of country (R19) | limited indirect effects of TVA on manufacturing productivity (O49) |
| TVA's inception conditions (H25) | positive rate of return (G12) |