Abstract

Joint work with Flavio Malnati.

New technologies have always been reshuffling economic activity—but little is known how an abrupt access to a break-through transportation technology affects regional economic development. In this paper, we use the abolition of the automobile ban in 1925 in the Swiss canton of Grisons to estimate the causal effect of a new transportation technology on subsequent rural economic development and structural economic change. Until 1925, automobiles were totally banned from Grisons’ streets. This ended unexpectedly in 1925 after a popular vote. We use the universe of selfcompiled commercial registers from 1890 to 1940 in an event-study setup by comparing firm foundations in Grisons with neighboring regions without any car ban. Firm registers contain information of the universe of firms, cooperatives and associations, their sector and ownership structure (private firm, stock company, etc.). We find that automobiles spurred rural economic development. Foundations spiked in Grisons mainly during the first two years after the ban. However, we can also document over-investments and subsequent waves of bankruptcies in some sectors—mainly in the lodging industry—likely driven by an over-optimistic perception about tourist flows with the new technology. Boom and bust cycles are particularly pronounced in smaller municipalities. Our findings thus show how new transportation technologies affect the rural economic activity causing periods of boom and bust. We may also contribute to the current debate on mobility cost and how it affects urban and rural places differently.