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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


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.
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