Can Regional Policy Stabilize Structural Transformation?

Structural transformation is often framed as an economic and technological challenge. Yet its success may ultimately be decided at the ballot box. Drawing on unique microdata covering all federal regional development programs in Germany, this study provides the first causal evidence that regional policy can dampen political polarization, measured by support for AfD. The findings show that visible investments – especially in infrastructure – reduce support for right-wing populism, particularly in regions under the greatest transformation pressure. At the same time, the analysis reveals a critical policy dilemma: while regional funding can stabilize vulnerable regions in the short term, innovation support often fails to reach the places that need economic renewal most. A timely contribution to one of the defining political and economic challenges of our time.