Looking for multiple equilibria when geography matters: German city growth and the WWII shock

Based on the methodology of Davis and Weinstein, we look for multiple equilibria in German city growth. Bytaking the bombing of Germany during WWII as an example of a large, temporary shock, we analyze whether German city growth is characterized by multiple equilibria. In doing so, we allow for spatial interdependencies between cities. The main findings are twofold. First, multiple equilibria are present in German city growth. Our evidence supports a model with two stable equilibria. Second, the inclusion of geography matters. The evidence for multiple equilibria is weaker when spatial interdependencies are not taken into account. (c) 2006 Elsevier Inc. All rights reserved.