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The economic revivals experienced by many of America's older cities in recent years can be attributed to improvements in transportation and communication technology. A new Kennedy School Working Paper proposes a new model to illustrate how such technological changes can impact many cities for the better while also affecting others for the worse.
The paper, “Did the Death of Distance Hurt Detroit and Help New York?,” is co-authored by Edward L. Glaeser, Fred and Eleanor Glimp professor of economics at Harvard College, and director, Taubman Center for State and Local Government, Harvard Kennedy School; and Giacomo A.M. Ponzetto, teaching fellow in economics, Department of Economics, Harvard University.
The authors argue that "reductions in transport costs reduce the advantages associated with making goods in the Midwest, but they increase the returns to producing new ideas in New York...When the costs of distance fall, manufacturing firms leave the city, which causes a decline in urban income and property values. The economy as a whole is getting more productive as the city's advantage in production is disappearing. This effect captures the decline in erstwhile manufacturing powerhouses like Cleveland the Detroit."
Meanwhile, the authors contend, those cities that became incubators for the innovation sector began thriving as communication costs decreased and information technologies improved.
"We think of the first case as capturing cities like New York and Boston in the 1970s, when the exodus of manufacturing first caused property values to plummet, while the extension reflects these cities in more recent years, when booming innovative sectors have been associated with rising real-estate costs," the authors write.
Edward L. Glaeser has taught at Harvard University since 1992. He is director of the Kennedy School's Taubman Center for State and Local Government and director of the Rappaport Institute of Greater Boston. He teaches urban and social economics and microeconomic theory and has published dozens of papers on cities, economic growth, and law and economics.
The Working Paper may be accessed on the Kennedy School website: http://ksgnotes1.harvard.edu/research/wpaper.nsf/rwp/RWP08-002