How polycentric is a monocentric city? Centers, spillovers and hysteresis

We assess the extent to which firms in an environment of decreasing transport costs and industrial transformation value the benefits of proximity to a historic central business district (CBD) and agglomeration economies in their location decisions. Taking a hybrid perspective of classical bid-rent theory and a world where clustering of economic activity is driven by between-firm spillovers, Berlin, Germany, from 1890 to 1936 serves as a case in point. Our results suggest that the average productivity effect of a doubling of between-firm spillovers over the study period increases from 3.5% to 8.3%. As the city transforms into a service-based economy, several micro-agglomerations emerge. Their locations close to the CBD still make the city look roughly monocentric. This is in line with a hysteresis effect in which second-nature geography drives the ongoing strength of a historic city center even though the importance of the originally relevant first-nature geography has vanished.