Martin Halla (University of Linz)

Extractive institutions: A little goes a long way. The Soviet occupation of Germany versus Austria  (with Christoph Eder)

Abstract: This paper examines how a short and temporary exposure to extractive institutions affects economic development, using the Allied Occupation of Austria as a laboratory. As a consequence of World War II, Austria was for ten years divided in different occupation zones. The Soviet occupation was “ xploitative", while the occupation by the Western Allies was more supportive. After ten years with different institutions in place, the regions returned to the same set of institutions. Using the combination of a regression discontinuity design in space with a difference-in-differences approach, we show that areas exposed to Soviet occupation are today still economically less developed. These areas are less populated, host less and lower-paying jobs and its residents are more likely to commute outside the former Soviet zone.