Local border reforms and economic activity

In this article, we make use of large-scale municipal border changes in Germany to provide the first evidence on the effect of local border changes on the distribution of activity in space. To allow for a comparison of economic activity within unique geographical units over time, we use geo-coded light data as well as local land-use data. Applying a difference-in-differences approach, we find evidence that municipalities absorbing their merger partners and hosting the new administrative center experience a significant increase in local activity, while the municipalities that are being absorbed and are losing the administrative center experience a decrease in such activity. The difference between the gains in activity from absorbing municipalities and the losses from absorbed ones is positive. These previously undocumented results point to the importance of distance to the administrative center as a determinant of the spatial distribution of economic activity.

Automated summary

In this article, the authors use large-scale municipal border changes in Germany to investigate the impact of local border changes on the distribution of economic activity. The results show that municipalities absorbing their merger partners and hosting the new administrative center experience an increase in local activity, while the absorbed municipalities experience a decrease. The difference between the gains and losses points to distance to the administrative center as a key factor in the spatial distribution of economic activity.