Looming stations: Valuing transport innovations in historical context

doi:10.1016/j.econlet.2009.06.010

Economics Letters

Volume 105, Issue 1, October 2009, Pages 97-99

https://doi.org/10.1016/j.econlet.2009.06.010 Get rights and content

Abstract

We investigate the impact of transport innovations on the productivity of urban locations in 1890–1936 Berlin, Germany. We find an increase in land value of up to 2.5% per 100 m decline in distance to urban railway station.

Introduction

Some of the economically most essential technological advances since the industrial revolution comprise transport innovations that brought economic agents closer together. The reduction of transport cost amplified agglomeration economies and economic growth along new major transport lines and, hence, sustainably reshaped the economic geography of regions and cities. On an urban scale, increased location productivity, which mirrors in land value, may arise, e.g. from lower input prices due to reduced transport cost, increased communication and human capital spillovers between firms. Reduced labor market frictions or improved worker efficiency due to reduced commuting effort (Gibbons and Machin, 2005) may further contribute to an increase in economic wealth. Rapid transit networks constituted by metrorail and suburban or commuter railway lines represent the backbone of urban mass transportation in many modern metropolitan areas, particularly in Europe. The impact of rail transit on property prices has attracted much scholarly attention (Bowes and Ihlanfeldt, 2001, Gatzlaff and Smith, 1993, Gibbons and Machin, 2005, McMillen and McDonald, 2004).

We follow an empirical approach that shares the basic ideas with Gibbons and Machin (2005) and reveals the marginal value of reduced distance to the next urban railway station by application of a time-difference estimation strategy. Our analysis however, differs in at least three important aspects. In contrast to Gibbons and Machin (2005) we use archival land values similar to McMillen (1996). There is no need for an adjustment for housing characteristics. Also, the sample is strictly restricted to commercial areas according to zoning regulations instead of using residential property data. Most importantly, our analysis investigates the impact of new stations during the peak time of industrialization, when the inauguration of the rapid transit network represented a major shock on intra-urban transport costs, accessibility, and hence, location attractiveness and productivity.

From 1890 to 1910, 871 of 1473 considered commercial areas experienced a decline in distance to station, while from 1910 to 1936 679 of 1678 locations were affected. Distance only increased at very few locations where stations were disconnected or slightly moved along the network. For a detailed description of the data set see Ahlfeldt and Wendland (2008).

Section snippets

Empirical strategy

The starting point of our empirical analysis is a simple monocentric city model (Alonso, 1964), which can be estimated using the well-established log-linear specification. Our standard setup assumes the value of urban land (LV) to be an exponential function of distance to the city center (distCBD).¹ We

Results

Results corresponding to Eq. (2) are presented in column (1) of Table 1 for the long difference 1890–1936. The positive coefficient on distCBD indicates the typical process of decentralization in industrializing cities, which reflects in a flattening land gradient. Accordingly, the marginal cost of locating farther away from the CBD is reduced by almost 40 percentage points. At the same time, the negative coefficient on distST points to a marginal increase in land value by approximately 22.3%

Discussion

Building on the work of Gibbons and Machin (2005), we provide the first archival evidence for the value of transport innovations during European industrialization.² Our results reflect the willingness of landlords to bid higher prices for

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^☆: We thank an anonymous referee and participants at the KOF research seminar for valuable comments and suggestions. Andreas Matschens from the Landesarchiv Berlin is gratefully acknowledged for excellent archival support. Ahlfeldt also thanks the Swiss Economic Institute of the E.T.H. Zurich for its generous hospitality.

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Looming stations: Valuing transport innovations in historical context☆

Abstract

Introduction

Section snippets

Empirical strategy

Results

Discussion

Journal of Urban Economics

Regional Science and Urban Economics

Journal of Urban Economics

Journal of Urban Economics

Review of Economic Dynamics

Journal of Urban Economics

Impact of sports arenas on land values: evidence from Berlin

The Annals of Regional Science

Location and Land Use: Toward a General Theory of Land Rent