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 place based economic development policies in U.S. history: the Tennessee Valley Authority (TVA). 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 eventually reversed, while impacts on manufacturing employment continued to intensify well after the program’s subsidies had lapsed – a pattern consistent with the presence of 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. We develop a novel approach to assessing the aggregate consequences of place based policies. Our findings suggest that the TVA boosted national manufacturing productivity by roughly 0.3% and that the dollar value of these productivity gains exceeded the program’s costs. ∗We thank Daron Acemoglu, Raj Chetty, Janet Currie, Yuriy Gorodnichenko, Chang-Tai Hsieh, Rick Hornbeck, Larry Katz, Costas Meghir, Evan Rawley, Stephen Redding, Chris Udry and seminar participants at Berkeley, Columbia, UC Davis, the Econometric Society Summer Meetings, Harvard, Humboldt, Maryland, Michigan, the NBER Summer Institute, Pompeu Fabra, Princeton, Stanford, Tinbergen, Yale, Wharton, Wisconsin, UBC, and UCLA for useful comments. 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.