Capital Shocks and the Great Urban Divide
68 Pages Posted: 22 Mar 2021 Last revised: 14 Jun 2021
Date Written: March 2, 2021
This paper exploits a uniquely-detailed dataset of capital flows into US cities via real estate investments. We identify how places were differently affected by the global financial crisis and provide a powerful explanation of why US economic growth continues to experience ongoing spatial divergence after many decades of convergence. Before the crisis, capital was allocated efficiently across different cities whereas, in terms of pricing and availability, the global financial shock favored large and prosperous cities over smaller and less prosperous cities. In effect, large urban centers become an extension of the bond market, underscoring the capital risk-safety aspects of agglomeration.
Keywords: capital shocks, risks, cities, global financial crisis
JEL Classification: R32, R51, R12, N22, G01
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