Speaker: Michael Peters is an Assistant Professor of Economics at Yale. More »
Abstract: How does the local economy respond to large changes in factor supplies? This paper uses a particular historical episode to study this question empirically. After the Second World War, between 1945 and 1948, about 12m Ethnic Germans were expelled from regions in Middle and Eastern Europe and transferred to Western Germany. At the time, this inflow amounted to 20% of the Western German population. Moreover, there are vast cross-sectional differences in the extent to which refugees were allocated to individual counties and various features of the allocation mechanism make it possible to construct exogenous variation in these local supply shocks. I study the effect of such shocks on Germany's regional economic development between 1950 and 1970. I find that refugee-inflows are strongly positively correlated with both manufacturing employment and overall economic activity at the county-level. These patterns are consistent with models of agglomeration and endogenous technological change but hard to rationalize in a neoclassical framework, where technology is exogenous.
Last Updated: Oct 06, 2016