Abstract
This paper analyzes the impact of investments in the German autobahn network on West German regions’ labor market performance. To address problems of endogeneity and reverse causation, we use historical instrumental variables from an 1890 plan for the railroad network and a 1937 plan for the autobahn and major roads network. We find a statistically and economically significant positive causal effect of regional changes in autobahn kilometers on employment and the wage bill. According to our IV results, a one-standard-deviation increase in the growth of autobahn length between 1937 and 1994 led to employment growth of between 2.7 and 3.4% and to wage bill growth of between 3.0 and 3.7% over the period from 1994 to 2008. The results are robust to an alternative regional demarcation and identification strategy as well as to alternative estimation methods.
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