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Market Size and Spatial Growth – Evidence from Germany’s Post-War Population Expulsions

CIREQ-McGill Seminar 2019-2020
joint with the Department of Economics, McGill University

Leacock 429 (McGill University, 855 Sherbrooke West)

Organizer Markus Poschke (McGill University)



Can increases in the size of the population raise productivity and spur economic development? This paper uses a particular historical episode to study this question empirically. In the aftermath of the Second World War, between 1945 and 1948, about 8m Ethnic Germans were expelled from their domiciles in Central and Eastern Europe and transferred to Western Germany. At the time, this inflow amounted to almost 20% of the Western German population. Using variation across counties I show that the settlement of refugees had a large and persistent effect on the local population, that it was associated with an increase manufacturing employment and that it increased income per capita, particularly in the long-run. I then show that these findings are quantitatively consistent with an idea-based theory of spatial growth, which implies that a shock to the local population can have persistent and protracted effects on local productively if labor mobility is limited. When calibrated to the reduced form regression estimates, the model implies that the inflow of refugees increased aggregate income per capita by about 25% after 25 years.

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