Essays on Economic Spillovers, Labor Markets, and Economic Development

Abstract

Location-based policies are widely used across the world in the hope of stimulating particular local economies. This dissertation consists of three chapters of empirical studies that evaluate the efficacy and efficiency of three different location-based government policy interventions. The first chapter studies the impacts of military personnel contractions on various aspects of the economies of counties in the United States. The second chapter estimates the causal effect of international aid on economic growth of recipient developing countries. The third chapter studies a large-scale industrial buildup in China and its impact on long-run regional economic development.

Chapter 1: The Local Economic Impacts of Military Personnel Contractions

The main challenges to comprehensive evaluations of the effects of local businesses on other parts of the local economy are to establish causality and to calculate the welfare impacts in a unified framework. In the first chapter, I study the effects on county economies of the large military personnel contractions in the United States in the 1990s. To establish causal estimates, I propose a new identification strategy that combines the synthetic control method and the instrumental variable estimator. I then put the estimated effects in a spatial general equilibrium model and calculate the welfare impacts on different agents of the local economy. I find that military personnel contractions significantly reduced local employment levels, but as people migrate, the incidence of welfare impacts was mainly on landowners, not on workers.

Chapter 2: The Effect of Aid on Growth: Evidence from a Quasi-Experiment (with Sebastian Galiani, Steve Knack, and L. Colin Xu)

Whether foreign aid promotes economic growth in recipient countries is one of the most important yet most debated questions in the study of economic growth. The second chapter studies the causal effect of foreign aid on economic growth by exploiting the large discontinuous reduction in aid that occurs as a country passes an exogenously-given income threshold. We find a positive and sizable causal effect of foreign aid: a one percentage point increase in the aid-to-GNI ratio raises annual economic growth by 0.35 percentage point.

Chapter 3: Industrializing from Scratch: the Persistent Effects of China's Third Front Movement" (with Jingting Fan)

The third chapter studies the effect of a large-scale industrialization effort in China known as the "Third Front Movement" on long-run development of regional economies. The Movement provides a unique policy experiment to study the important question of whether temporary government subsidies in the nascent industrial sector can permanently push a rural economy into a new development path. We find that decades after the Movement ended, industrialization and urbanization levels remained much higher in local economies that received large subsidies from the Movement, and the effects are mainly driven by the fast-growing non-state sector.