Did Big Government's Largesse Help the Locals? The Implications of WWII Spending for Local Economic Activity, 1939-1958

Abstract

Studies of the development of local economies often point to large-scale World War II military spending as a source of long-term economic growth, even though the spending declined sharply after the demobilization. We examine the longer term impact of the temporary war spending on county economies using a variety of measures of socioeconomic activity: including per capita retail sales, the extent of manufacturing, population growth, the share of women in the work force, housing values and ownership, and per capita savings over the period 1940-1950. We find that in the longer term counties receiving more war spending per capita during the war experienced extensive growth due to increases in population but not intensive growth, as the war spending had very small impacts on per capita measures of economic activity.

Identifying Government Spending Shocks: It's all in the Timing*

“…Ramey and Shapiro (1998), Edelberg, Eichenbaum, and Fisher (1999), Burnside, Eichenbaum, and Fisher (2004), and Cavallo (2005)). Event studies such as Giavazzi and Pagano's (1990) analysis of fiscal consolidations in several European countries, and Cullen and Fishback's (2006) analysis of WWII spending on local retail sales generally show a negative effect of government spending on private consumption. Hall's (1986) analysis using annual data back to 1920 finds a slightly negative effect of government purchases on consumption.…”

Identifying Government Spending Shocks: It's All in the Timing

“…Ramey and Shapiro (1998), Edelberg, Eichenbaum, and Fisher (1999), Burnside, Eichenbaum, and Fisher (2004), and Cavallo (2005)). Event studies such as Giavazzi and Pagano's (1990) analysis of fiscal consolidations in several European countries, and Cullen and Fishback's (2006) analysis of WWII spending on local retail sales generally show a negative effect of government spending on private consumption. Hall's (1986) analysis using annual data back to 1920 finds a slightly negative effect of government purchases on consumption.…”

The US farm credit system and agricultural development: Evidence from an early expansion, 1920–1940

“…This paper also contributes to a growing literature using historical data sources to study the effects of institutions and infrastructure in the history of US economic development such as State Agricultural Experiment Stations (Kantor & Whalley, 2019), railroads (Donaldson & Hornbeck, 2016), and rural electric cooperatives (Kitchens & Fishback, 2015; Lewis & Severnini, 2020). It also contributes to the literature analyzing the suite of New Deal programs and their impacts on the US economy (Cullen & Fishback, 2006; Fishback et al, 2003). In this case, the PCAs were a unique New Deal program because they grew out of an already existing system and were incentivized to work independently from the US government.…”