Extractive Institutions: A Little Goes a Long Way. Evidence from the Soviet Occupation of Austria

Location: School of International Studies. via T. Gar 14, Room 001
Time: from 14:15 to 16:00

Guest Speaker
Martin Halla, University of Linz, Austria

Abstract
By Martin Halla and Christoph Eder
As a consequence of World War II, Austria was divided into four different occupation zones for 10 years. Before tight travel restrictions came into place, about 11 percent of the population residing in the Soviet zone moved across the demarcation line. We exploit this large internal migration shock to further our understanding of why economic activity is distributed unevenly across space. Our analysis shows that the distorted population distribution across locations has fully persisted until today (60 years after the demarcation line become obsolete). An analysis of more direct measures of economic activity shows an even higher concentration in the former non-Soviet zone. This gap in economic activity is growing over time, mainly due to commuting streams out of the former Soviet zone. This shows that a transitory shock is capable of shifting an economy to a new spatial equilibrium, which provides strong evidence for the importance of increasing returns to scale in explaining the spatial distribution of economic activity.