Future Technology Hubs or Backwater? Lessons on Structural Change from Germany’s Coal Regions

This paper studies the structural adjustment from natural resource-intensive industry- to knowledge-based growth. The closure of coal mines in Germany over 1975-2017 produces local labor market shocks that reveal how the presence of natural resources and international competition may affect the rise and fall of regions. Employing register data on all workers and establishments from Germany and geo-coded data on patents, coal mines and universities, we show that the loss of mining jobs triggers massive employment reductions in the entire manufacturing sector, especially in steel, but also in services industries. This is evidence for both input- and demand linkages through mining that create local agglomeration benefits. Second, mine closures lead to accelerated local restructuring in some but not all regions. Heterogeneity in the performance of former mining regions has increased. Generally, firms become more nimble, with average plant size falling, and mine closures lead to rapid job growth in IT and R&D. Moreover, employing linked patent-patentee data we show that mine closures can increase regional innovative activity. Preliminary findings indicate that knowledge-based growth is generated especially in regions that newly create universities of applied sciences. We outline a specific-factors, Rosen (1979)- Roback (1982) model to quantify aggregate implications.