Employment effects of large industrial investments in remote and sparsely populated areas – A Synthetic Control Approach.

In this paper, we study the impact of a large industrial establishment in the manufacturing industry on employment in a remote and sparsely populated Swedish labour market area. Our main focus is on its effect on total regional employment, as industrial policies aiming to attract investment and reignite employment in stagnating regions have been a central policy tool. The empirical analysis is based on the Synthetic Control Method, which enables estimation of place-specific causal effects. Using aggregated microdata covering the period 1995 to 2019, our results indicate that employment in the treated region as compared to the synthetic region has been negatively affected by the large entry. We do find, however, heterogenous short- and long-term effects in different labour market segments (same, related, and unrelated industries) and when analysing the effect on small- and medium-sized firms. Overall, our findings suggest that the regional employment effect of a large manufacturing investment is not necessarily positive on total employment or instantaneous. It does, however, provide some potential for long-term diversification, because employment in related activities is growing in the longer run.