Growth or Displacement? A Metro Line's Causal Impact on the Spatial Distribution of Business Units and Employment: Evidence from London

Abstract

This paper uses data on the location of business units and employment in London to estimate the impact of a new metro line on the spatial distribution of economic activity. Our unique business units level dataset allows us to track the movement of units across space and time, making it possible to estimate the growth and displacement component of the impact. In addition to standard panel fixed effect methods, we employ a planned-route instrumental variables methodology which uses planned but abandoned metro alignments. We find that areas within walking distance to stations experience a significant positive effect (3.6% more business units and 2.5% more employment), whereas areas further off but still within 2000 meters experience a significant negative impact (-1.3% for business units and -3% for employment). Our result provides empirical evidence for the models of both Fujita et al. (1999) and Redding & Turner (2015) as areas close to the transport scheme but not subject to it are worse off than areas further away. The results suggest no growth, only displacement: the metro merely shifted economic activity closer to the stations. This paper contributes substantively to both the urban and transport economics literatures, and it also provides useful insights for the assessment of wider economic benefits in project appraisal, and thus, for the efficient use of public funds.