The Political Geography of Cities

We study the link between regional capitals and urban development. We exploit new global data on hundreds of first-order administrative and capital city reforms from 1987 until 2018 to estimate the capital city premium. Gaining capital status increases city growth in the medium term, spilling over to nearby cities. The capital premium varies with the size of the territory governed by the city, and political status complements favorable economic fundamentals. We document two mechanisms: migration of educated individuals to capital cities and heightened public and private investment, with private investment favoring capital cities with stronger economic fundamentals. (JEL D72, E22, H54, O18, R11, R12, R58)