Neighborhoods, Race, and Capital

Abstract

The author analyzes changes in commercial building activity over the 1980s for 75 central-city residential neighborhoods in Chicago to identify how neighborhood residential change affects commercial investment. Spatial econometrics are used to control for problems of spatial autocorrelation. The results indicate that although changes in population and income levels are important, racial and ethnic change have substantial effects on commercial investment flows. Increases in the percentage of black or Hispanic residents result in decreases in commercial investment. Although additional research is needed to identify the specific mechanisms resulting in these effects, the magnitudes are substantial, and potential policy implications are considered.