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CEP discussion paper
The billion pound drop: the blitz and agglomeration economies in London
Gerard H. Dericks and Hans R. A. Koster
April 2018
Paper No' CEPDP1542:
Full Paper (pdf)

JEL Classification: R14; R33; R38

Tags: regulatory costs; office rents; agglomeration economies; london blitz bombings

This paper exploits locally exogenous variation in the location of bombs dropped during the Blitz to quantify the effect of density restrictions on agglomeration economies in London: an elite global city. Employing microgeographic data on office rents and employment, this analysis points to effects for London several multiples larger than the existing literature which primarily derives its results from secondary cities. In particular, doubling employment density raises rents by 25%. Consequently if the Blitz had not taken place, the resulting loss in agglomeration economies to present day London would cause total annual office rent revenues to fall by $4:5 billion { equivalent to 1:2% of London's annual GDP. These results illuminate the substantial impact of land-use regulations in one of the world's largest and most productive cities.