Estimating the Impact of Shuttle Launches on Regional Economic Activity

Abstract

The objective of this study is to quantify the impact of public investment in space programs on the regional economic activity in the areas host to the program launch operations. I implement an econometric strategy that takes the timing of the Shuttle program retirement as a natural experiment to investigate the role of public investment in space as a driver of regional economic activity. I rely on a technique known as the synthetic control method to estimate the counterfactual outcomes for the Space Coast. Comparing the observed outcomes with the estimated counterfactual outcomes provides evidence of large spillover effects of the Shuttle program in the economy of the Space Coast. My results suggest discontinuing the Shuttle program made payroll in Brevard County on average $824 million lower than the counterfactual outcome for every year since the final Shuttle mission, for a cumulative reduction in payroll of $3.3 billion below potential by 2015. In percentage terms, payroll grew at an average annual rate of 1.88% where its counterfactual growth rate was 5.25%. Evidence on employment suggests employment grow of 0.43% annually relative to counterfactual employment growth of 1.6%, keeping the recovery from the Great Recession anemic. Together, these estimates provide strong evidence that public investment in space is a boon for economic activity. The implications for space policy with this evidence are clear: public investment in space generates large and significant regional economic activity that needs to be taken into account when considering the costs and benefits of the investment. Further implications of the evidence for regional planners and firm managers are discussed.

Keywords: Synthetic Control, Payroll, Employment, Regional Economics

JEL Classification: J4, R1, R23