Democracy to the road: the political economy of potholes

Are dictatorships more prone to build and maintain roads? This paper identifies a puzzling fact: countries that are more democratic tend to have roads in worse conditions than less democratic countries. Using lagged values of a democracy index to instrument for democracy in 1980 yields higher estimates of the magnitude of the association between democracy and bad roads. Instruments based on climate, population, and education yield similar results. The evidence points to a negative causal relationship from democracy to road quality. The author also finds that changes to a more democratic government are associated with slower growth of the road network. The author advances four non-mutually exclusive hypotheses that can explain the results and find support for one of them: dictatorships prefer a better highway network ready for external and internal military intervention.Roads

The impact of immigration on American cities: an introduction to the issues

In "The Impact of Immigration on American Cities: An Introduction to the Issues," Albert Saiz discusses immigration's impact on a receiving country's labor and housing markets, fiscal systems, and social interactions.Immigrants

Urban decline and housing reinvestment: the role of construction costs and the supply side

Negative demand shocks have afflicted many American cities in the 20th century and are the main explanation for their decaying housing markets. But what is the role of housing supply? Rational entrepreneurs should not invest in new buildings and renovation when home values are below replacement cost. Households with an investment motive should behave similarly. Empirically, the authors find that construction costs are not very sensitive to building activity but do vary with local income, unionization rates in the construction sector, the level of local regulation, and region. They also document that the variance in building costs generates substantial variance in renovation expenditures across cities. Owner-occupied homes with market values below replacement costs spend about 50 percent less on renovation than similar homes with market values above construction costs. The authors also report on the distribution of the ratio of house value-to-construction cost across markets. The distribution is relatively flat in a number of declining cities, especially older manufacturing areas. In these places, a relatively modest 10 percent decline in replacement costs would find between 7-15 percent of the local housing stock moving from being valued below cost to above cost. Even though modest declines in construction costs are unlikely to change basic urban trends, the authors' results suggest they can be an important factor in determining whether various neighborhoods in declining cities will experience any significant reinvestment. In this respect, declining cities truly cannot afford to be expensive cities in terms of replacement costs: urban scholars and policy makers should begin to pay more attention to the cost side of cities.Urban economics ; Construction industry ; Supply-side economics

The returns to speaking a second language

Does speaking a foreign language have an impact on earnings? The authors use a variety of empirical strategies to address this issue for a representative sample of U.S. college graduates. OLS regressions with a complete set of controls to minimize concerns about omitted variable biases, propensity score methods, and panel data techniques all lead to similar conclusions. The hourly earnings of those who speak a foreign language are more than 2 percent higher than the earnings of those who do not. The authors obtain higher and more imprecise point estimates using state high school graduation and college entry and graduation requirements as instrumental variables.

Immigration and the neighborhood

What impact does immigration have on neighborhood dynamics? Within metropolitan areas, the authors find that housing values have grown relatively more slowly in neighborhoods of immigrant settlement. They propose three nonexclusive explanations: changes in housing quality, reverse causality, or the hypothesis that natives find immigrant neighbors relatively less attractive (native flight). To instrument for the actual number of new immigrants, the authors deploy a geographic diffusion model that predicts the number of new immigrants in a neighborhood using lagged densities of the foreign-born in surrounding neighborhoods. Subject to the validity of their instruments, the evidence is consistent with a causal interpretation of an impact from growing immigration density to native flight and relatively slower housing price appreciation. Further evidence indicates that these results may be driven more by the demand for residential segregation based on race and education than by foreignness per se.Immigrants

The Rise of the Skilled City

For more than a century, educated cities have grown more quickly than comparable cities with less human capital. This fact survives a battery of other control variables, metropolitan area fixed effects and tests for reverse causality. We also find that skilled cities are growing because they are becoming more economically productive (relative to less skilled cities), not because these cities are becoming more attractive places to live. Most surprisingly, we find evidence suggesting that the skills-city growth connection occurs mainly in declining areas and occurs in large part because skilled cities are better at adapting to economic shocks. As in Schultz (1964), skills appear to permit adaptation.

Owning versus leasing: do courts matter?

The authors develop a legal contract enforcement theory of the own versus lease decision. The allocation of ownership rights will minimize enforcement costs when the legal system is inefficient. In particular, when legal enforcement of contracts is costly, there will be a shift from arrangements that rely on such enforcement (such as a rental agreement) toward other forms that do not (such as direct ownership). The authors then test this prediction and show that costly enforcement of rental contracts hampers the development of the rental housing market in a cross-section of countries. They argue that this association is not the result of reverse causation from a developed rental market to more investor-protective enforcement and is not driven by alternative institutional channels. The results provide supportive evidence on the importance of legal contract enforcement for market development and the optimal allocation of property rights.

City Beautiful

The city beautiful movement, which in the early 20th Century advocated city beautification as a way to improve the living conditions and civic virtues of the urban dweller, had languished by the Great Depression. Today, new urban economic theory and policymakers are coming to see the provision of consumer leisure amenities as a way to attract population, especially the highly skilled and their employers. However, past studies have only provided indirect evidence of the importance of leisure amenities for urban development. In this paper we propose and validate the number of leisure trips to MSAs as a measure of consumer revealed preferences for local leisure-oriented amenities. Population and employment growth in the 1990s was about 2 percent higher in an MSA with twice as many leisure visits: the third most important predictor of recent population growth in standardized terms. Moreover, this variable does a good job at forecasting out-of-sample growth for the period 2000–2006. "Beautiful cities" disproportionally attracted highly-educated individuals, and experienced faster housing price appreciation, especially in supply-inelastic markets. Investment by local government in new public recreational areas within an MSA was positively associated with higher subsequent city attractiveness. In contrast to the generally declining trends in the American central city, neighborhoods that were close to "central recreational districts" have experienced economic growth, albeit at the cost of minority displacement.internal migration, amenities, urban population growth

City Beautiful

The City Beautiful movement, which in the early 20th century advocated city beautification as a way to improve the living conditions and civic virtues of the urban dweller, had languished by the Great Depression. Today, new urban economic theorists and policymakers are coming to see the provision of consumer leisure amenities as a way to attract population, especially the highly skilled and their employers. However, past studies have provided only indirect evidence of the importance of leisure amenities for urban development. In this paper we propose and validate the number of leisure trips to metropolitan statistical areas (MSAs) as a measure of consumers' revealed preferences for local leisure-oriented amenities. Population and employment growth in the 1990s was about 2 percent higher in an MSA with twice as many leisure visits: the third most important predictor of recent population growth in standardized terms. Moreover, this variable does a good job of forecasting out-of-sample growth for the period 2000-2006. “Beautiful cities” disproportionally attracted highly educated individuals and experienced faster housing price appreciation, especially in supply-inelastic markets. Investment by local government in new public recreational areas within an MSA was positively associated with higher subsequent city attractiveness. In contrast to the generally declining trends in the American central city, neighborhoods that were close to “central recreational districts” have experienced economic growth, albeit at the cost of minority displacement.Cities and towns

The rise of the skilled city

For more than a century, educated cities have grown more quickly than comparable cities with less human capital. This fact survives a battery of other control variables, metropolitan area fixed effects, and tests for reverse causality. The authors also find that skilled cities are growing because they are becoming more economically productive (relative to less skilled cities), not because these cities are becoming more attractive places to live. Most surprisingly, the authors find evidence suggesting that the skills-city growth connection occurs mainly in declining areas and occurs in large part because skilled cities are better at adapting to economic shocks. As in Schultz (1964), skills appear to permit adaptationCities and towns