DP13392 | Can Kings Create Towns that Thrive? The long-run implications of new town foundations

Publication Date

12/13/2018

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Abstract

Town foundations have been at the core of urban planning since the onset of civilization. This paper describes the long-run impact of an urbanization place-based policy that was considered a failure by contemporary policymakers. We test the impact of founded towns using a series of town foundations that took place between 1570 and 1810, when the Swedish Crown conferred monopoly market rights to trade upon 31 previously rural ordinary parishes. We show that towns were founded in locations with little natural potential, evident in their limited impact on agricultural surplus in the surrounding hinterlands. However, the new foundations drove extensive growth in terms of population and created positive spillover effects up to 40-50 km around the settlements. Still, the founded towns remained extraordinarily small by the end of the policy period. It was not until the Industrial Revolution that these towns began to thrive. We suggest that trading rights and sunk investments initially served to coordinate expectations about future growth. Once the towns started to grow, agglomeration effects generated persistence in the long term.