Friday 4 March 2011

Temporary and permanent shocks

Of potential relevance for Christchurch: German cities heavily bombed by the Allies saw only transitory effects on growth rather than permanent effects. At least for those cities lucky enough to be in the west and able to benefit from Ludwig Erhard's deregulation.
We construct a unique data set in order to analyse whether or not a large temporary shock has an impact on city growth. Following recent work by Davis and Weinstein on Japan, we take the strategic bombing of German cities during World War II as an example of such a shock, and analyse its impact on post-war German city growth. If the war shock has only a temporary impact, then there will be a tendency towards mean reversion. Our main finding is that the bombing had a significant but temporary impact on post-war city growth in Germany as a whole as well as in West Germany separately, but that this is not the case for city growth in East Germany.
It would make for a closer comparison if the fact of Allied carpet bombing in one city raised Germans' expectations that that city would again be carpet bombed at random draw time in the future. Effects could be a bit different.

On the other hand, if the Soviets were more likely to shell the cities that the Allies had previously bombed had WWIII ever transpired, then it might not be that bad a comparison.

1 comment: