Temporary Shocks and Persistent Effects in the Urban System: Evidence from British Cities after the U.S. Civil War

W. Walker Hanlon

NBER Working Paper No. 20471
Issued in September 2014
NBER Program(s):Program on the Development of the American Economy

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 show that the shock to cotton textiles was transmitted to other local firms, 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. Roughly half of the reduction in city-level employment growth was due to the impact on industries other than cotton textiles.

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Document Object Identifier (DOI): 10.3386/w20471

Published: Temporary Shocks and Persistent Effects in Urban Economies: Evidence from British Cities after the U.S. Civil War W. Walker Hanlon The Review of Economics and Statistics 2017 99:1, 67-79

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