Department of Economics Working Papers,
Vienna University of Economics and Business, Department of Economics

Abstract: How does military occupation affect long-term economic development? We use the post-World War II occupation of Austria as a laboratory setting. Austria was divided into different occupation zones for ten years. The Soviet occupation was exploitative, while the Western Allied occupation was more supportive. After ten years of different occupation regimes, the regions returned to a single nation-state. We estimate the impact of different occupation regimes on long-term economic development. Methodologically, we combine a spatial regression discontinuity design with a difference-in-differences approach. We find that areas in the former Soviet zone are still less economically developed today. These areas are less populated, host fewer and lower paying jobs, and their residents are more likely to commute outside the former Soviet zone. The most plausible mechanism for these long-lasting effects are agglomeration effects triggered by a large migration shock from East to West as the population fled the advancing Soviet army.

Keywords: Military occupation, migration, economic development, World War II, Austria, agglomeration effects

JEL-codes: R11; R12; R23; J61; N44; N94 July 2024

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