History and Industry Location: Evidence from German Airports

Abstract

A central prediction of a large class of theoretical models is that industry location is not necessarily uniquely determined by fundamentals. In these models, historical accident or expectations determine which of several steady-state locations is selected. Despite the theoretical prominence of these ideas, there is surprisingly little systematic evidence on their empirical relevance. This paper exploits the combination of the division of Germany after the Second World War and the reunification of East and West Germany as an exogenous shock to industry location. We focus on a particular economic activity and establish that division caused a shift of Germany's air hub from Berlin to Frankfurt and there is no evidence of a return of the air hub to Berlin after reunification. We develop a body of evidence that the relocation of the air hub is not driven by a change in economic fundamentals but is instead a shift between multiple steady-states.

Do governments tax agglomeration rents?

“…From this long-lagged railway information, we define two instruments: first, the number of train connections which ran through a municipality between 1835 and 1935 and the train network in neighboring communities between 1835 and 1935 (the latter being defined as the sum of train connections which ran through neighboring communities normalized on distance). 26 This is, for example, also accounted for in a related framework by Redding, Sturm, and Wolf (2007) who show that the division of Germany into two states after World War II triggered a relocation of the airport hub from Berlin to Frankfurt (Main) which did not relocate back to Berlin after the reunification of Germany in 1990. This suggests that past infra-structure investments may prevail and may equally determine today's location patterns.…”

Does medieval trade still matter? Historical trade centers, agglomeration and contemporary economic development

“…Furthermore, it can contribute to the understanding of the persistent differences in regional economic development (Becker et al 2010, Maseland 2012, Tabellini 2010or Waidlein 2011. Finally, this study contributes to a growing literature reporting on the persistence and pathdependent nature of spatial equilibria (e.g., in industry concentration) and city growth processes (Bosker et al 2007, Bleakly and Lin 2012, Davis and Weinstein 2002, Davis and Weinstein 2008, Miguel and Roland 2011and Redding et al 2011. To establish a link between medieval trade, agglomeration and contemporary performance we link the typical characteristics of medieval trade and cities to the determinants of agglomeration suggested by New Economic Geography (NEG) and agglomeration economics (e.g., Krugman 1991, Glaeser et al 1992.…”

Density economies and transport geography: Evidence from the container shipping industry

“…Second, our analysis contributes to the literature on the empirical relevance of multiple equilibria (e.g., Weinstein, 2001, 2008;Bosker et al, 2007;Redding et al, 2011;Bleakley and Lin, 2012). Hitherto, this literature has been far from conclusive.…”

“…Hitherto, this literature has been far from conclusive. Our work is most closely related to Redding et al (2011), who examine the development of German airports before and after the division in World War II, and identify the shift of the air hub from Berlin to Frankfurt as the multiple equilibria in industrial locations. However, the current study differs from Redding et al (2011) in two respects.…”

“…Our work is most closely related to Redding et al (2011), who examine the development of German airports before and after the division in World War II, and identify the shift of the air hub from Berlin to Frankfurt as the multiple equilibria in industrial locations. However, the current study differs from Redding et al (2011) in two respects. First, we use port-prefecture OD data while they relied on the aggregate airport-level traffic variation; one important advantage of our disaggregate OD data approach is that it allows us to identify the source and heterogeneity of transport traffic change and exploit the underlying channel.…”