The Long-Term Consequences of Regional Specialization

Guy Michaels

No 6028, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: What are the consequences of resource-based regional specialization, when it persists over a long period of time? While much of the literature argues that specialization is beneficial, recent work suggests it may be costly in the long run, due to economic or political reasons. I examine this question empirically, using exogenous geological variation in the location of subsurface oil in the Southern United States. I find that oil abundant counties are highly specialized: for many decades their mining sector was almost as large as their entire manufacturing sector. During the 1940s and 1950s, oil abundant counties enjoyed per capita income that was 20-30 percent higher than other nearby counties, and their workforce was better educated. But whereas in 1940 oil production crowded out agriculture, over the next 50 years it caused the oil abundant counties to develop a smaller manufacturing sector. This led to slower accumulation of human capital in the oil abundant counties, and to a narrowing of per capita income differentials to about 5 percentage points. Despite this caveat, the gains from specialization were large, and specialization had little impact on the fraction of total income spent by local government or on income inequality.

Keywords: Growth; Human capital; Petroleum; Specialization (search for similar items in EconPapers)
JEL-codes: J24 O18 O33 Q33 R11 (search for similar items in EconPapers)
Date: 2006-12
New Economics Papers: this item is included in nep-his and nep-ure
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7)

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Related works:
Working Paper: The Long-Term Consequences of Regional Specialization (2006)
Working Paper: The long-term consequences of regional specialization (2006)
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