Local Economic Development, Agglomeration Economies and the Big Push: 100 Years of Evidence from the TVA” Working Paper 2011

We study the long run effects of one of the most ambitious place based economic development policies in U.S. history: the Tennessee Valley Authority. Using a rich panel dataset of counties, we conduct an evaluation of the dynamic effects of the TVA on local economies in the seventy years following the program’s inception. We find that the TVA led to short run gains in agricultural employment that were eventu-ally reversed, while impacts on manufacturing employment continued to intensify well after the program’s subsidies had lapsed – a pattern consistent with the presence of strong agglomeration economies in the manufacturing sector. Economists have long cautioned that the local gains created by place based policies may be offset by losses elsewhere, yielding ambiguous effects on the U.S. as a whole. Building on the frame-work in Glaeser and Gottlieb (2008), we develop a novel approach to assessing the aggregate consequences of shifting the spatial distribution of manufacturing employ-ment. Our findings suggest the aggregate productivity gains associated with relocating manufacturing activity to the TVA region were probably minimal