A few years ago I came across a paper by Oliver Falck, Michael Fritsch and Stephan Heblich, ‘The Phantom of the Opera: Cultural Amenities, Human Capital, and Regional Economic Growth‘ that used a rather unique data set to try to get around the knotty problem of finding whether cultural amenities generated urban economic development, or followed urban economic development:
We analyze the extent to which endogenous cultural amenities affect the spatial equilibrium share of high-human-capital employees. To overcome endogeneity, we draw on a quasi-natural experiment in German history and exploit the exogenous spatial distribution of baroque opera houses built as a part of rulers’ competition for prestigious cultural amenities. Robustness tests confirm our strategy and strengthen the finding that proximity to a baroque opera house significantly affects the spatial equilibrium share of high-human-capital employees. Then, a cross-region growth regression shows that these employees induce local knowledge spillovers and shift a location to a higher growth path.
I think this is a really interesting approach, a natural experiment. But scientific progress comes from falsification, and today I received a new paper by Thomas K. Bauer, Philipp Breidenbach and Christoph M. Schmidt, ‘“Phantom of the Opera” or “Sex and the City”? Historical Amenities as Sources of Exogenous Variation‘:
Using the location of baroque opera houses as a natural experiment, Falck et al. (2011) claim to document a positive causal effect of the supply of cultural goods on today’s regional distribution of talents. This paper raises serious doubts on the validity of the identification strategy underlying these estimates, though. While we are able to replicate the original results, we proceed to show that the same empirical strategy also assigns positive causal effects to the location of historical brothels and breweries. These estimated effects are similar in size and significance to those of historical opera houses. We document that all these estimates reflect the importance of institutions for long-run economic growth, and that the effect of historical amenities on the contemporary local share of high skilled workers disappears upon controlling for regions’ historical importance.
The good news: there is so much to be learned, so many great dissertation topics out there waiting to be picked up!
I haven’t read these studies, but it would be absurd to discount on their basis the idea that the arts can increase the intellectual capital or prosperity of a region of a city. Social and economic conditions in the baroque era were so different from today that any comparisons would be very tenuous. And for that matter, brothels also had a very different position in society, as did breweries.
A better approach would be to chart the value of real estate in the modern era after cultural centers are built in neighborhoods. To build Lincoln Center, the housing of about 5000 working class and poor people in Manhattan had to be destroyed. It was a poor neighborhood, but the real estate around Lincoln Center is now among the most expensive in the city. We could be pretty sure that building an opera house or cultural center today in most areas of most cities would greatly increase property values, enhance the prestige of the neighborhood, and bring in more educated people.
The exception might be if the center were built in an area that is already high income. And of course, those opposed to subvention of the arts, will argue that this is all just one more example of the high arts elitism that just drives poor people away. Economics is not always quite the hard science some might claim. When it comes to the distribution of money, everybody has an agenda, something I notice even many economists are ready to forget — including the Chicago Boys.