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The Political Geography of Cities

Author

Listed:
  • Richard Bluhm
  • Christian Lessmann
  • Paul Schaudt

Abstract

We study the link between regional capitals and urban development. We exploit new global data on hundreds of first-order administrative and capital city reforms from 1987 until 2018 to estimate the capital city premium. Gaining capital status increases city growth in the medium term, spilling over to nearby cities. The capital premium varies with the size of the territory governed by the city, and political status complements favorable economic fundamentals. We document two mechanisms: migration of educated individuals to capital cities and heightened public and private investment, with private investment favoring capital cities with stronger economic fundamentals.

Suggested Citation

  • Richard Bluhm & Christian Lessmann & Paul Schaudt, 2026. "The Political Geography of Cities," American Economic Journal: Applied Economics, American Economic Association, vol. 18(3), pages 1-42, July.
    • Handle: RePEc:aea:aejapp:v:18:y:2026:i:3:p:1-42
    DOI: 10.1257/app.20230301
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    More about this item

    JEL classification:

    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • H54 - Public Economics - - National Government Expenditures and Related Policies - - - Infrastructures
    • O18 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Urban, Rural, Regional, and Transportation Analysis; Housing; Infrastructure
    • R11 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Regional Economic Activity: Growth, Development, Environmental Issues, and Changes
    • R12 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Size and Spatial Distributions of Regional Economic Activity; Interregional Trade (economic geography)
    • R58 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Regional Government Analysis - - - Regional Development Planning and Policy

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