Why Cities Fail: Local Political Institutions and the Fates of Metropolitan Economies

Abstract

What differentiates economically successful urban areas from those that fall into decline? This dissertation attempts to improve upon existing answers to this question by examining the relationship between metropolitan political institutions and local economic performance. The impetus for this focus is the significant role that political institutions have come to play in explaining the structure and long-term performance of national economies. To apply this line of reasoning to the urban level, I examine three metropolitan institutions with plausible links to the local economy's structure and performance. Rather than focusing on variation in local decision-making rules (the most common approach to studying political institutions), I focus on variation in the organizational avenues available for achieving policy outcomes. The three institutional avenues I analyze are: 1) the degree of territorial–or Tiebout–competition (representing the ability to obtain policy outcomes by leveraging intergovernmental competition); 2) the revenue capacity of the primary city government (representing the ability to obtain policy outcomes by lobbying a large-scale government); and 3) the prevalence of special district governments (representing the ability to obtain policy outcomes by creating independent, specialized governments). To examine the economic effects of these institutions, I consider their characteristics in light of a three-stage theory of urban economic development. Using this framework, I derive hypotheses linking the prevalence of each institution to the structure and performance of the metropolitan economy in each stage. Testing these hypotheses via panel regression analysis, I find that both a higher capacity primary city government and an increased prevalence of special districts consistently boost metropolitan economic performance across the stages (as measured by the metropolitan income level). In contrast, a higher degree of territorial competition has a more limited impact, improving a metropolitan area's international competitiveness (but not its income level) and doing so only during the second stage of development. I finish the dissertation by applying these insights to the decline of metropolitan Detroit, demonstrating how they improve a prominent explanation found in neoclassical urban economics.