The Economic Dynamics of City Structure: Evidence from Hiroshima's Recovery

We provide new theory and evidence on the resilience of internal city structure after a large shock. We analyze the atomic bombing of Hiroshima, which destroyed the city center but not its outskirts. Exploiting newly digitized data on block-level population and employment, we document that the city structure recovered within five years after the bombing. We then develop a dynamic quantitative model of internal city structure, which incorporates commuting, forward-looking location choices, migration frictions, agglomeration forces, and heterogeneous location fundamentals. Strong agglomeration forces in our estimated model can explain the recovery of Hiroshima. While we find an alternative equilibrium in which the city center did not recover, self-fulfilling expectations might have selected the equilibrium in which the city center recovered. These results highlight the importance of agglomeration forces, multiple equilibria, and expectations in the dynamics of city structure.