The local environmental and welfare effects of large industrial shutdowns in Germany

The clean energy transition and large-scale deindustrialization are transforming the industrial landscape of high-income economies, sparking debates over who will benefit and who will be left behind. Germany offers an interesting example: while renewable energy employment has nearly quadrupled since the early 2000s, structural changes have also deepened wage inequality in certain regions.

In this paper, Philipp Bothe explores how closures of large industrial facilities in Germany affect surrounding communities. By exploiting quasi-random variation in the timing of facility shutdowns, he analyzes the neighborhood-level effects of these closures using data at the 1km x 1km grid cell level.

KEY FINDINGS

• Shutting down industrial sites improves local air quality, but the most affected neighborhoods see a 4% annual drop in disposable household income four years after closure. This amounts to a total annual loss of €0.7 to €1.9 billion in these areas.
• The air quality benefits do not translate into higher housing prices. Housing values drop by up to 5% after the shutdown – a result that contrasts with existing findings from the US.
• Contrary to the environmental gentrification hypothesis, neighborhoods surrounding closed industrial sites become less amenable over time.
• These finding make a case for targeted compensation and place-based policy in the most affected neighborhoods to prevent persistent regional deprivation, as seen in other countries.

Effect of Facility Closures on Disposable Household Income per adult

AUTHOR

• Philipp Bothe, Paris School of Economics & World Inequality Lab

MEDIA CONTACT

•  press[at]wid.world