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Michael Peters Publications

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Virtually all theories of economic growth predict a positive relationship between population size and productivity. In this paper, I study a particular historical episode to provide direct evidence for the empirical relevance of such scale effects. In the af- termath of the Second World War, 8 million ethnic Germans were expelled from their domiciles in Eastern Europe and transferred to West Germany. This inflow increased the German population by almost 20%. Using variation across counties, I show that the settlement of refugees had large and persistent effects on the size of the local popula- tion, manufacturing employment, and income per capita. These findings are quantita- tively consistent with an idea-based model of spatial growth if population mobility is subject to frictions and productivity spillovers occur locally. The estimated model im- plies that the refugee settlement increased aggregate income per capita by about 12% after 25 years and triggered a process of industrialization in rural areas.