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The Power of Hydroelectric Dams: Agglomeration Spillovers

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  • Severnini, Edson R.

    (Carnegie Mellon University)

Abstract
How much of the geographic clustering of economic activity is attributable to agglomeration spillovers as opposed to natural advantages? I present evidence on this question using data on the long-run effects of large scale hydroelectric dams built in the U.S. over the 20th century, obtained through a unique comparison between counties with or without dams but with similar hydropower potential. Until mid-century, the availability of cheap local power from hydroelectric dams conveyed an important advantage that attracted industry and population. By the 1950s, however, these advantages were attenuated by improvements in the efficiency of thermal power generation and the advent of high tension transmission lines. Using a novel combination of synthetic control methods and event-study techniques, I show that, on average, dams built before 1950 had substantial short run effects on local population and employment growth, whereas those built after 1950 had no such effects. Moreover, the impact of pre-1950 dams persisted and continued to grow after the advantages of cheap local hydroelectricity were attenuated, suggesting the presence of important agglomeration spillovers. Over a 50 year horizon, I estimate that at least one half of the long run effect of pre-1950 dams is due to spillovers. The estimated short and long run effects are highly robust to alternative procedures for selecting synthetic controls, to controls for confounding factors such as proximity to transportation networks, and to alternative sample restrictions, such as dropping dams built by the Tennessee Valley Authority or removing control counties with environmental regulations. I also find small local agglomeration effects from smaller dam projects, and small spillovers to nearby locations from large dams.

Suggested Citation

  • Severnini, Edson R., 2014. "The Power of Hydroelectric Dams: Agglomeration Spillovers," IZA Discussion Papers 8082, Institute of Labor Economics (IZA).
    • Handle: RePEc:iza:izadps:dp8082
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    3. Bruno Ferman & Cristine Pinto & Vitor Possebom, 2020. "Cherry Picking with Synthetic Controls," Journal of Policy Analysis and Management, John Wiley & Sons, Ltd., vol. 39(2), pages 510-532, March.
    4. Shimeng Liu, 2015. "Spillovers from Universities: Evidence from the Land-Grant Program," Working Paper 9410, USC Lusk Center for Real Estate.
    5. Ferman, Bruno & Pinto, Cristine, 2016. "Revisiting the Synthetic Control Estimator," MPRA Paper 73982, University Library of Munich, Germany.
    6. Gabrielle Pepin, 2022. "The effects of welfare time limits on access to financial resources: Evidence from the 2010s," Southern Economic Journal, John Wiley & Sons, vol. 88(4), pages 1343-1372, April.
    7. Lewis, Joshua & Severnini, Edson, 2020. "Short- and long-run impacts of rural electrification: Evidence from the historical rollout of the U.S. power grid," Journal of Development Economics, Elsevier, vol. 143(C).
    8. Aniseh S. Bro & Emilio Moran & Miquéias Freitas Calvi, 2018. "Market Participation in the Age of Big Dams: The Belo Monte Hydroelectric Dam and Its Impact on Rural Agrarian Households," Sustainability, MDPI, vol. 10(5), pages 1-15, May.
    9. Miguel Morin, 2015. "The Labor Market Consequences of Electricity Adoption: Concrete Evidence from the Great Depression," Cambridge Working Papers in Economics 1554, Faculty of Economics, University of Cambridge.
    10. Suresh Nallareddy & Ethan Rouen & Juan Carlos Suárez Serrato, 2022. "Do Corporate Tax Cuts Increase Income Inequality?," Tax Policy and the Economy, University of Chicago Press, vol. 36(1), pages 35-91.
    11. Fetzer, Thiemo, 2014. "Fracking growth," LSE Research Online Documents on Economics 60350, London School of Economics and Political Science, LSE Library.
    12. Kyle C. Meng, 2016. "Estimating Path Dependence in Energy Transitions," NBER Working Papers 22536, National Bureau of Economic Research, Inc.
    13. Stefan Leknes & Jørgen Modalsli, 2018. "Who benefited from industrialization? The local effects of hydropower technology adoption," Discussion Papers 874, Statistics Norway, Research Department.
    14. Hanlon, W.Walker & Heblich, Stephan, 2022. "History and urban economics," Regional Science and Urban Economics, Elsevier, vol. 94(C).
    15. Gaggl, Paul & Gray, Rowena & Marinescu, Ioana & Morin, Miguel, 2021. "Does electricity drive structural transformation? Evidence from the United States," Labour Economics, Elsevier, vol. 68(C).
    16. Carl Kitchens & Price Fishback, 2013. "Flip the Switch: The Spatial Impact of the Rural Electrification Administration 1935-1940," NBER Working Papers 19743, National Bureau of Economic Research, Inc.
    17. Abebe, Girum & McMillan, Margaret & Serafinelli, Michel, 2022. "Foreign direct investment and knowledge diffusion in poor locations," Journal of Development Economics, Elsevier, vol. 158(C).
    18. Clay, Karen & Lewis, Joshua & Severnini, Edson R., 2016. "Canary in a Coal Mine: Infant Mortality, Property Values, and Tradeoffs Associated with Mid-20th Century Air Pollution," IZA Discussion Papers 9884, Institute of Labor Economics (IZA).
    19. Jeffrey Lin, 2015. "The puzzling persistence of place," Business Review, Federal Reserve Bank of Philadelphia, issue Q2, pages 1-8.
    20. de Faria, Felipe A.M. & Davis, Alex & Severnini, Edson & Jaramillo, Paulina, 2017. "The local socio-economic impacts of large hydropower plant development in a developing country," Energy Economics, Elsevier, vol. 67(C), pages 533-544.

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    More about this item

    Keywords

    hydroelectric dams; agglomeration spillovers; employment growth; event-study analysis with synthetic control methods;
    All these keywords.

    JEL classification:

    • N92 - Economic History - - Regional and Urban History - - - U.S.; Canada: 1913-
    • R11 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Regional Economic Activity: Growth, Development, Environmental Issues, and Changes
    • R12 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Size and Spatial Distributions of Regional Economic Activity; Interregional Trade (economic geography)
    • Q42 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Alternative Energy Sources

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