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Data Centers and Local Economies in the Age of AI: A Shift--Share Approach
Fernando E. Alvarez,
David Argente,
Joyce Chow
& Diana Van Patten
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Working Paper 35194
DOI 10.3386/w35194
Issue Date May 2026
Data centers are the physical infrastructure behind cloud computing, artificial intelligence, and enterprise software. The rapid diffusion of artificial intelligence (AI) is intensifying demand for compute, accelerating investment in data centers, and raising concerns about the local economic and environmental footprint of these facilities. Their expansion creates a local policy tradeoff. A data center can bring capital investment, construction activity, and specialized employment, but it can also increase demand for electricity, land, and grid capacity. This paper studies these effects at the U.S. county level. We assemble a facility-level panel of global data centers with precise coordinates, scale metrics, and annualized revenue. We map facilities to U.S. counties and combine them with County Business Patterns, county-level IRS income, county-level house prices, and electricity prices. To address endogenous siting, we instrument for data center growth using two shift-share instruments, which leverage pre-existing proximity to InterTubes long-haul fiber nodes and the 1980 county share of U.S. urban college population as shares, and both Chinese and rest-of-the-world data center revenue growth as shifts. The IV estimates show positive effects on total employment, data-processing employment, construction employment, establishments, house prices, and electricity prices at different horizons after data center growth. We also find positive effects on tax returns, adjusted gross income, and wages, while annual payroll responds less robustly. The results suggest that data centers create measurable local activity, increase house prices, and affect local electricity markets through higher prices.
Acknowledgements and Disclosures
The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research.
Fernando E. Alvarez
I have visited, taught, or consulted for the following institutions, where I have received an honorarium and/or paid traveling/lodging expenses:
EIEF, Rome, Italy. As research visitor.
University Torcuato Di Tella, Buenos Aires, Argentina, as a visiting professor.
Federal Reserve Bank of Chicago, US. As consultant to the Research Department.
Federal Reserve Bank of Richmond, US. As consultant to the Research Department.
Federal Reserve Bank of Minneapolis, US. As consultant to the Research Department.
Federal Reserve Bank of Philadelphia, US. As consultant to the Research Department.
Banco Central de Chile, Santiago Chile. As a conference participant, and writer of a book chapter.
European Central Bank, Frankfurt, Germany. As Duisenberg Fellow, as regular research visitor to the MPR division, and as a PRISMA visitor.
Goldman Sachs Global Market Institute, US. As a fellow.
Gerzensee’s Swiss Program for Doctoral Students, Switzerland. As a visiting professor.
Toulouse School of Economics, Toulouse, France. As a research visitor.
Cowles Foundation, Yale, US. As a research visitor.
Morris and Morris LLC, and Weinstein, Kitchenoff and Asher LLC, as a consultant to and compute damages on litigation related for financial contracts, US.
Bank of International Settlement, Basel, Switzerland. As a Lamfalussy senior research fellow.
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Fernando E. Alvarez, David Argente, Joyce Chow, and Diana Van Patten, "Data Centers and Local Economies in the Age of AI: A Shift--Share Approach," NBER Working Paper 35194 (2026), https://doi.org/10.3386/w35194.
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