Tuesday 30 October 2018

The Making of Modern London

[By Stephan Heblich, Steve Redding and Daniel Sturm]

Modern metropolitan areas include vast concentrations of economic activity, with Greater London and New York City today accounting for around 8.4 and 8.5 million people, respectively. These intense population concentrations involve the transport of millions of people each day between their residence and workplace. Today, the London Underground alone handles around 3.5 million passenger journeys per day, and its trains travel around 76 million kilometres each year (about 200 times the distance between the earth and the moon). Yet relatively little is known about the role of these commuting flows in sustaining dense concentrations of economic activity. On the one hand, these commuting flows impose substantial real resource costs, both in terms of time spent commuting and the construction of large networks of complex transportation infrastructure. On the other hand, they are also central to the creation of predominantly commercial and residential areas, with their distinctive characteristics for production and consumption.

In our recent CEP discussion paper we use the mid-19th century transport revolution from the invention of steam railways, a newly created, spatially disaggregated dataset for Greater London from 1801-1921, and a quantitative urban model to provide new evidence on the contribution of the separation of workplace and residence to agglomeration. London during the 19th century is arguably the poster child for the large metropolitan areas observed around the world today. In 1801, London's built-up area housed around 1 million people and spanned only five miles East to West. In contrast, by 1901, Greater London contained over 6.5 million people, measured more than 17 miles across, and was on a dramatically larger scale than any previous urban area. By the beginning of the 20th century, London was the largest city in the world by some margin (with New York City and Greater Paris having populations of 3.4 million and 4 million, respectively, at this time), and London's population exceeded that of several European countries. Furthermore, London developed through a largely haphazard and organic process during this period, which suggests that both the size and structure of the city responded to decentralised market forces. Therefore, 19th century London provides a natural testing ground for assessing the empirical relevance of models of city size and structure.

The key idea behind our approach is that the slow travel times achievable by human or horse power implied that most people lived close to where they worked when these were the main modes of transportation. In contrast, the invention of steam railways dramatically reduced the time taken to travel a given distance, increasing average travel speeds from around 6 mph for horse-drawn vehicles and 3 mph for walking to around 21 mph, which permitted the first large-scale separation of workplace and residence. This separation enabled locations to specialise according to their comparative advantage in production and residence.

Our evidence strongly suggests that a class of quantitative urban models is remarkably successful when using these changes in transport costs to explain the large-scale changes in the organisation of economic activity observed in 19th century London. Our findings highlight the role of modern transport technologies in sustaining dense concentrations of economic activity.

This is a short version of our recent VoxEU piece (which provides more methodological detail).

You might also enjoy Steve Redding's VoxEU interview on our research.