Infrastructure's Long-Lived Impact on Urban Development: Theory and Empirics

We analyse impacts that infrastructure provision and other factors have on long run urban growth. Reflecting spatial equilibrium insights, growing cities have preferred attributes relative to other cities. These attributes may include natural characteristics, social amenities and transport infrastructure that have productive and/or amenity value. We outline a theoretical model that includes distance-related effects on individual utility and thence population location, and we test this model using historical data covering 1926 to 2006 across 56 New Zealand towns. Instruments dating back to 1880 are used to deal with potential endogeneity issues, and we use spatial-econometrics techniques to test for spatial spillovers between cities. Our analysis shows that four dominant factors have impacted positively on urban growth, especially since 1966: nearby land-use capability, human capital, sunshine hours and proximity to the country’s dominant city, Auckland.