Natural Amenities, Neighbourhood Dynamics, and Persistence in the Spatial Distribution of Income

We present theory and evidence highlighting the role of natural amenities in neighbourhood dynamics, suburbanization, and variation across cities in the persistence of the spatial distribution of income. Our model generates three predictions that we confirm using a novel database of consistent-boundary neighbourhoods in U.S. metropolitan areas, 1880-2010, and spatial data for natural features such as coastlines and hills. First, persistent natural amenities anchor neighbourhoods to high incomes over time. Secondly, naturally heterogeneous cities exhibit persistent spatial distributions of income. Thirdly, downtown neighbourhoods in coastal cities were less susceptible to the widespread decentralization of income in the mid-twentieth century and experienced an increase in income more quickly after 1980.