The billion pound drop: the Blitz and agglomeration economies in London

Abstract We exploit locally exogenous variation from the Blitz bombings to quantify effect of redevelopment frictions and identify agglomeration economies at a micro-geographic scale. Employing rich location office rental transaction data, we estimate reduced-form analyses spatial general equilibrium model. Our demonstrate that more heavily bombed areas exhibit taller buildings today, elasticities in London are large, approaching 0.2. Counterfactual simulations show if had not occurred, concomitant reduction arising loss higher-density would cause London’s present-day gross domestic product drop by some 10% (or £50 billion).