Persistent shocks to urban density: Evidence from the Berlin air raids

Abstract

Temporary shocks can have persistent effects on the distribution of economic activity across urban space, suggesting considerable “stickiness” in adjustment to spatial equilibrium. I examine the long-run effect of World War II air raids on Berlin’s contemporary population density profile, exploiting random variation in the extent of damage caused at the scale of street blocks, while controlling for a flexible, secular time trend in the citywide density gradient. 70 years after the end of the war, blocks affected by irreparable damage feature significantly lower population density, while repairable damage had no lasting effect. These findings are consistent with a vintage effect, where large fixed costs associated with the construction of new buildings retard adjustment of the housing supply to growing demand for low-density structures.