The Long-Run Effects of Government Spending on Structural Change: Evidence from Second World War Defense Contracts

by Zhimin Li*,Dmitri Koustas

ARTICLE | Economics Letters | Vol. 178， 2019

Abstract

This paper studies the long-run effects of the largest government spending program in U.S. history Second World War defense spending – on structural change in local economies. We link a dataset

of war supply contracts with economic data at the county level spanning from 1930 to 2000. Using counties that received no defense spending as a comparison group and controlling for prewar

characteristics, we find that wartime defense spending led to sustained reallocation of labor to manufacturing and other non-agricultural sectors in war production centers, contributing to the

long-term population growth in those regions.