Temporary Shocks and Persistent Effects in the Urban System: Evidence from British Cities after the U.S. Civil War
W Hanlon ()
No 79, 2015 Meeting Papers from Society for Economic Dynamics
Urban economies are often heavily reliant on a small number of dominant industries, leaving them vulnerable to negative industry-specific shocks. This paper analyzes the long-run impacts of one such event: the large, temporary, and industry-specific shock to the British cotton textile industry caused by the U.S. Civil War (1861-1865), which dramatically reduced supplies of raw cotton. Because the British cotton textile industry was heavily concentrated in towns in Northwest England, I compare patterns in these cotton towns to other English cities. I find that the shock had a persistent negative effect on the level of city population lasting at least 35 years with no sign of diminishing. Decomposing the effect by industry, I use new data to show that the shock to cotton textiles was rapidly transmitted to local firms in other industries, leading to increased bankruptcies and long-run reductions in employment. This transmission occurred primarily through the link to capital suppliers, such as machinery and metal-goods producers. As a result of these cascading effects, roughly half of the reduction in city-level employment growth in cotton towns during the Civil War was due to the impact on industries other than cotton textiles.
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Working Paper: Temporary Shocks and Persistent Effects in the Urban System: Evidence from British Cities after the U.S. Civil War (2014)
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