Capital Shocks and the Great Urban Divide
57 Pages Posted: 22 Mar 2021 Last revised: 23 May 2022
Date Written: March 2, 2021
This paper exploits signals of capital pricing and availability in US cities which are obtained from uniquely-detailed data on real estate investments. We identify how places were differently affected by the global financial crisis and provide insights which offer an alternative explanation of why US economic growth continues to experience spatial divergence after many decades of convergence. Investment pricing uncovers that before the crisis capital was allocated efficiently across localities, whereas the global financial shock favored large and prosperous places. These findings point to persistent post-crisis asymmetry in local capital market conditions and underscore the capital risk-safety aspects of agglomeration.
Keywords: capital shocks, risks, cities, real estate, global financial crisis
JEL Classification: R32, R51, R12, N22, G01
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