Friday, April 30, 2010

Shanghai's World Fair Investments = Superstar City

When I was a kid, we would drive out to Queens, NY to see my grandfather. Along the highway, we would drive past the rusting remains of the 1964 World's Fair and I would wonder; "what in the heck is that junk". I did not attend that festival of love. It hasn't aged well. Now, the major newspapers are reporting that Shanghai has invested a fortune to get ready for its World Fair. So, the 2008 Olympics offered the central government an incentive to invest in Beijing and now it is Shanghai's turn. What have the people of Shanghai gotten? A fresh coat of paint, some nice flowers and miles and miles of new clean subways. Not a bad deal, but a public finance guy might ask; "who paid for all of this stuff?" I guess that rural people and other cities have. There is a good paper to be written on the government's urban favortism. Are Beijing and Shanghai treated better than other cities in a system of transfers? Who are the losers? Is it the countryside? How are rural people taxed?

The whole enterprise of investing in a World's Fair raises the question of how do global cities signal that they are superstar cities? An economist would ask a few empirical questions;

1. Are international tourists visiting your city?

2. Holding hotel quality constant, what is the nightly price of a hotel room in your city relative to other cities?

3. What share of your nation's wealthy people live in your city? This signals through revealed preference that the city is desirable and recent research by Erik Hurst indicates that cities and communities that attract the rich enjoy a snowball process that this feeds on itself through "endogenous amenity" improvement (in english; better restaurants and shops close to the rich).

4. Do any international rich people live in your city?

5. What is the "golden goose" of your city? If it is an industry that attracts the skilled, then I am more optimistic about your claims to greatness.

6. Of course history and culture matter and offer a distinctive niche for cities such as Rome that a Las Vegas can't match or replicate.

I do think that the quality of life investments triggered by the 2008 Beijing Olympics and the 2010 Shanghai World Fair both will get local politicians "in the mood" of recognizing the economic benefits of promoting a "green cities" agenda. If such experience changes their subsequent policy choices, then these events could make a big difference in accelerating "green progress" in China's major cities.

UPDATE: Here is a sophisticated interview with California's Jerry Brown. He makes a lot of sense; especially where he discusses investment uncertainty created by the political business cycle.

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