where’s the capital?

I am a little late to this, but last week a bit of a debate erupted about whether it is better or worse to split-up the political and commercial capitals of countries. It was sparked by an off-hand concluding remark by Luigi Zingales in an article for the City Journal on whether New York is likely to retain its title as the world’s financial capital:

The Founding Fathers wisely decided that the nation’s political capital should be separate from its financial capital (in both senses of the word). Now this splendid segregation has ended. 

Greg Mankiw picked up on that quote and spread it around the interwebs.

Then Matt Yglesias weighed in, countering with the boring vs. exciting capital hypothesis:

One model, seen in France and the UK, is of a single dominant city. Another model, seen in Italy, is where your capital is also your largest city (Rome), but the main financial and business center is elsewhere (Milan). Then you have your scenarios, seen in the US and Canada, where a capital is established someplace a bit random specifically to avoid choosing between major cities. This tends to lead to capital cities with a reputation as ‘boring.’

No one was taking this too seriously.  But they raise some interesting questions about the relationship between government and economic growth.  Zingales and Mankiw’s idea is that separating government from the financial sector is a good thing.  They don’t really expand on why, but I can guess at their reasoning: they think that a financial industry that is too close to government is likely to be over-regulated and hamstrung.  Yglesias’s idea is simply that stand alone government capitals may be boring (Springfield, Ottawa) or beautiful (Edinburgh, Rome), but whether the capital stands apart shouldn’t matter for much when it comes to actual growth.  I’d offer two contrasting alternative hypotheses for why co-locating government and industry might actually matter:

1. The Full of Themselves Hypothesis:  This one has to do with status hierarchies.  Where the government capital is also in the largest city, your status as a government type competes with other status hierarchies (industry, media, education, etc).  But in places where the government is the most important game in town, there is really only one status hierarchy.  My idea is that legislators are more full of themselves in places where government is the big dog in town.  The prediction, then, is that that would be worse for economic performance as legislators go off willy-nilly coming up with big, but ill-conceived, ideas.
2. The Social Capture Hypothesis:    This one has to do with networks.  Where the government capital is also in the largest city, you’d expect bureaucrats and legislators to hobnob fairly regularly with elites from industry and other sectors.  This should tend to make their decision-making more elitist (and in the case of finance, more sympathetic to the interests of bankers).  Where government stands alone, government should be (a) less beholden to elite interests and/or (b) more influenced by a wider spectrum of special interest group lobbying.

Thanks to the joys of Wikipedia, it’s fairly simple to pull down a few quick and dirty statistics.  Nothing definitive, but enough to whet the appetite…

First, some descriptive stats are in order:  What is the breakdown of countries and/or states where the largest city is also the capital?

All of the stats I’m going to quote are for 89 countries with more than 6 million residents and, for comparison sake, the 18 US states and 16 Indian states with more than 6 million residents.  I should also mention that I am using data on the metropolitan area of cities, not cities-proper (so, e.g., New Delhi is within the metro area of Delhi, not a separate city).  The data on cities are from the World Gazetteer for consistency-sake.  Everything else comes from Wikipedia.  And the numbers are:

Capital is Largest City

Countries (n=89)         70%

US States (n=18)          33%

Indian States (n=16)    44%

So, in general, most national capitals are located in the largest city in the country, but this isn’t true for sub-national states.  This raises a few other questions on what determines whether a government capital city is located in the largest city.  For instance, one might assume that places where one city really dominates the population of the country, it would be more likely to find the capital in that city.  To do this right, you’d want to look at the size of various cities in a country when the capital was established.  But it’s too much work to do that right now, so I’m just looking at current correlations.  Surprisingly, the correlation between the size of a country or state’s largest city and the rest of its population is negative among countries and Indian states, and practically zero among large US states.

	Average Size of the Largest City as a Percent of Total Population
	Capital is Largest	Capital is not Largest
Countries	15.71%	18.82%
US States	43.04%	41.17%
Indian States	4.93%	17.70%

.

I would have expected it to be the opposite, but one probable explanation for this is the fact that the larger the country or state, the more likely it is that the capital is not in the largest city.  There are probably multiple reasons for that, but one of them is simply because the larger the country is, the smaller a percentage any one city can take up (e.g., Shanghai is a city of 21 million people, but that still accounts for just than 1% of China’s population while Athens, at 3 million, takes up 34% of Greece’s population).  Another explanation, of course, is that the city that becomes the capital can capture a lot of economic development and therefore becomes the largest over time.

Also somewhat surprising is the question of whether places with two relatively closely matched cities end up putting the capital somewhere in between.  My assumption (and Matt’s) was that countries/states where two cities are relatively well matched (think LA and San Francisco, Pittsburgh and Philadelphia) will have remote capitals (Sacramento and Harrisburg).  But the data actually show the opposite: the more dominant the largest city is, the more likely it is that the capital is located somewhere else, except in US states where, again, it’s a wash (true for California and Pennsylvania, but not true for Tennessee, which is evenly matched between Nashville and Memphis, and for New York which is decidedly mismatched between New York and Buffalo).

	Average Ratio of the Largest City to the Second Largest City
	Capital is Largest	Capital is not Largest
Countries	1.83	3.32
US States	5.85	5.54
Indian States	1.94	5.11

.

My guess is that this is due to at least two factors: (1) a number of countries have consciously moved their capitals away from the major cities in order to both relieve overcrowding and provide a nicer lifestyle for government bureaucrats and (2) populist or dictatorial regimes sometimes move their capitals away from the major city intentionally as a means of maintaining control by buffering themselves from elites (see hypothesis 2).

Ok.  But the big question is whether there is any correlation between the economic success of a place and the status of its capital.  I looked at the annual growth of per capita GDP for countries and US states between 1990 and 2007, and for Indian States between 1993 and 2006.  The results are mixed.

	Average Annual Per Capita Growth of GDP
	Capital is Largest	Capital is not Largest
Countries	5.74%	6.92%
US States	2.02%	1.83%
Indian States	4.5%	4.6%

.

In general, countries where the capital is not located in the largest city seem to be growing faster than countries where the capital is in the largest city.  However, this is where the comparison within countries is important: holding constant the overall growth rate of the country, the results are a wash (or if anything, slightly tilted toward the alternative hypotheses in the case of US States).  This tells me that something else is going on…  One would want to do a more careful statistical analysis (easily done but beyond what I’m willing to put into it right now) to really test the hypotheses.  But I thought the preliminary results are interesting enough to warrant weighing in.

UPDATE: Here are the data, FYI.

Region	Country	US State	Indian State	Political	Largest Metro as Percent of Pop	Largest City Pop	Second City	Second City Pop	Region Population	Largest Metro as Percent of Pop	Ratio of Largest to Second Largest	Large=Pol	Regional Growth
Australia	1			Canberra	Sydney	4,399,722	Melbourne	3,892,419	21,848,000	20%	1.130331	0	5.31%
Bolivia	1			Sucre	La Paz	2,268,683	Santa Cruz	1,614,618	9,863,000	23%	1.40509	0	6.01%
Brazil	1			Brazillia	Sao Paulo	20,534,112	Rio De Jenaro	12,058,824	191,519,000	11%	1.702829	0	4.58%
Canada	1			Ottawa	Toronto	5,113,149	Montreal	3,635,571	33,716,000	15%	1.406423	0	4.35%
China	1			Beijing	Shanghai	17,783,119	Beijing	12,230,029	1,331,860,000	1%	1.454054	0	12.37%
Cote d’Ivoire	1			Yamoussoukro	Abidjan	5,878,609			21,075,000	28%		0	3.30%
Ecuador	1			Quito	Guayaquil	2,248,800	Quito	1,621,817	14,014,947	16%	1.386593	0	8.41%
Germany	1			Berlin	Rein-Ruhr	11,831,297	Berlin	4,055,548	82,062,200	14%	2.917312	0	3.72%
India	1			Delhi	Mumbai	21,347,412	Delhi	18,639,762	1,166,430,000	2%	1.145262	0	5.71%
Israel	1			Jerusalem	Tel Aviv	3,340,850			7,424,400	45%		0	6.35%
Malaysia	1			Putrajaya	Kuala Lampur	7,635,858	Pinang	1,856,370	27,468,000	28%	4.113328	0	8.63%
Morocco	1			Rabat	Casablanca	3,269,962	Rabat	1,787,307	31,491,578	10%	1.829547	0	5.65%
Myanmar	1			Naypyidaw	Rangoon	4,994,082			50,020,000	10%		0	7.78%
Netherlands	1			split	Amsterdam	1,443,258	Rotterdam	1,186,818	16,517,532	9%	1.216074	0	5.20%
Nigeria	1			Abuja	Lagos	13,134,029	Ibadan	5,210,392	154,729,000	8%	2.520737	0	9.86%
Pakistan	1			Islamabad	Karachi	12,827,927	Lahore	6,936,563	166,953,500	8%	1.84932	0	6.37%
Poland	1			Warsaw	Katowice	2,710,397	Warsaw	2,660,406	38,130,300	7%	1.018791	0	11.64%
South Africa	1			Pretoria	Johannesburg	7,864,994	Cape Town	4,899,329	48,697,000	16%	1.605321	0	5.60%
Sri Lanka	1			Sri Jayawardenapura Kotte	Kolamba	2,618,658			20,238,000	13%		0	8.40%
Switzerland	1			Berne	Zurich	1,110,478	Geneva	812,000	7,725,200	14%	1.367584	0	2.89%
Syria	1			Dimashq	Halab	2,925,478	Dimashq	2,759,230	21,906,000	13%	1.060252	0	7.40%
Tanzania	1			Dodoma	Dar es Salaam	3,092,430			43,739,000	7%		0	7.02%
Turkey	1			Ankara	Istanbul	13,778,373	Ankara	3,791,642	71,517,100	19%	3.63388	0	5.48%
UAE	1			Abu Dhabi	Dubai	2,353,215	Abu Dhabi	945,268	4,599,000	51%	2.489469	0	10.74%
US	1			Washington	New York City	23,141,893	Los Angeles	17,881,561	306,924,000	8%	1.294176	0	4.17%
Vietnam	1			Hanoi	Ho Chi Minh	5,318,392	Hanoi	2,717,562	88,069,000	6%	1.957045	0	15.15%
Bihar			1	Patna	Panta	2,569,775	Gaya	499,874	82,998,509	3%	5.140845	0	4.4%
Chhattisgarh			1	Thiruvananthapuram	Kochi	1,541,175	Visakhapatnam	1,047,560	31,841,374	5%	1.471205	0	7.8%
Gujarat			1	Gandhinagar	Ahmedabad	5,334,314	Surat	3,196,799	50,671,017	11%	1.668642	0	5.1%
Jharkhand			1	Ranchi	Jamshedpur	1,252,815	Dhanbad	1,210,235	26,945,829	5%	1.035183	0	5.3%
Kerala			1	Dispur	Guwahati	1,038,071			26,655,528	4%		0	4.5%
Madhya Pradesh			1	Bhopal	Indore	2,049,193	Bhopal	1,751,766	60,348,023	3%	1.169787	0	4.1%
Orissa			1	Chandigarh	Bhubaneswar	1,666,429	Raurkela	550,668	24,358,999	7%	3.026195	0	2.2%
Punjab			1	Raipur	Ludhiana	1,107,012	Amritsar	1,206,918	20,833,803	5%	0.917222	0	4.0%
Uttar Pradesh			1	Lucknow	Kanpur	3,494,275	Lucknow	2,991,280	190,891,000	2%	1.168154	0	3.7%
California		1		Sacramento	Los Angeles	15,250,000	San Francisco	4,274,531	36,756,666	41%	3.567643	0	1.68%
Florida		1		Talahassee	Miami	5,414,772	Tampa	2,733,761	18,328,340	30%	1.980704	0	1.87%
Illinois		1		Springfield	Chicago	9,569,624	Peoria	371,206	12,901,563	74%	25.77982	0	1.86%
Michigan		1		Lansing	Detroit	4,425,110	Grand Rapids	776,742	10,003,422	44%	5.697014	0	1.60%
Missouri		1		Jefferson City	St. Louis	2,816,710	Kansas City	2,002,047	5,911,605	48%	1.406915	0	1.57%
New York		1		Albany	New York City	19,006,798	Buffalo	1,124,309	19,490,297	98%	16.90532	0	2.04%
North Carolina		1		Raleigh	Charlotte	1,701,799	Raleigh	1,088,765	9,222,414	18%	1.563054	0	1.99%
Ohio		1		Columbus	Cleveland	2,088,291	Cincinatti	2,009,632	11,485,910	18%	1.039141	0	1.72%
Pennsylvania		1		Harrisburg	Philadelphia	5,838,471	Pittsburgh	2,351,192	12,448,279	47%	2.483196	0	1.91%
Texas		1		Austin	Dallas	6,300,006	Houston	5,728,143	24,326,974	26%	1.099834	0	2.02%
Virginia		1		Richmond	Virginia Beach	1,658,292	Richmond	1,225,626	7,769,089	21%	1.353016	0	1.90%
Washington		1		Olympia	Seattle	3,344,813	Spokane	456,175	6,549,224	51%	7.332302	0	1.80%
Afghanistan	1			Kabul	Kabul	2,413,032			28,150,000	9%		1	5.74%
Algeria	1			Algiers	Algiers	6,488,795			34,895,000	19%		1	4.58%
Angola	1			Luanda	Luanda	4,577,500			18,498,000	25%		1	10.03%
Argentina	1			Buenos Aires	Buenos Aires	14,393,015	Córdoba	1,819,522	40,135,000	36%	7.910328	1	3.70%
Austria	1			Viena	Viena	2,179,769	Linz	532,995	8,356,707	26%	4.089661	1	4.44%
Austria	1			Vienna	Vienna	2,123,829			8,356,707	25%		1	4.92%
Azerbaijan	1			Baku	Baku	2,255,268			8,629,900	26%		1	9.66%
Bangladesh	1			Dhaka	Dhaka	13,778,179	Chāţţagām	3,761,337	162,221,000	8%	3.663107	1	4.83%
Belarus	1			Minsk	Minsk	1,758,453			9,671,900	18%		1	5.23%
Belgium	1			Brussels	Brussels	1,800,663	Antwerp	915,258	10,741,000	17%	1.967383	1	4.55%
Cameroon	1			Yaoundé	Yaoundé	2,184,528			19,522,000	11%		1	3.20%
Chad	1			N’Djaména	N’Djaména	1,554,578			11,206,000	14%		1	9.72%
Chile	1			Santiago	Santiago	5,145,599			16,938,000	30%		1	9.79%
Colombia	1			Bogota	Bogota	8,286,535	Medellin	3,337,722	45,006,200	18%	2.482692	1	7.70%
Congo	1			Kinshasa	Kinshasa	10,076,099	Lubumbashi	1,713,852	66,020,000	15%	5.879212	1	0.16%
Cuba	1			Habana	Habana	2,601,335			11,204,000	23%		1	3.14%
Egypt	1			Cairo	Cairo	16,254,102	al-Iskandarīyah	4,545,218	76,855,037	21%	3.576089	1	7.45%
Ethiopia	1			Addis Ababa	Addis Ababa	3,230,771			79,221,000	4%		1	2.55%
France	1			Paris	Paris	11,089,124	Lyon	1,717,300	65,073,482	17%	6.457302	1	3.77%
Ghana	1			Accra	Accra	4,092,613	Kumasi	1,852,449	23,837,000	17%	2.209299	1	5.38%
Greece	1			Athens	Athens	3,853,451			11,262,500	34%		1	7.33%
Guatemala	1			Guatemala	Guatemala	3,481,976			14,027,000	25%		1	9.80%
Guinea	1			Conakry	Conakry	1,931,184			10,069,000	19%		1	2.42%
Haiti	1			Port-au-Prince	Port-au-Prince	1,753,767			10,033,000	17%		1	4.87%
Honduras	1			Tegucigalpa	Tegucigalpa	2,187,434			7,466,000	29%		1	7.44%
Hungary	1			Budapest	Budapest	2,573,664			10,029,900	26%		1	8.10%
Indonesia	1			Jakarta	Jakarta	18,924,470	Bandung	6,492,753	230,512,000	8%	2.914707	1	6.08%
Iran	1			Tehran	Tehran	12,949,621	Esfahan	3,075,665	70,495,782	18%	4.210348	1	7.10%
Iraq	1			Bagdad	Bagdad	11,206,300	Basra	4,094,523	30,747,000	36%	2.7369	1	8.59%
Italy	1			Rome	Rome	3,457,690	Milan	3,076,643	60,090,400	6%	1.123852	1	3.45%
Japan	1			Tokyo	Tokyo	37,468,203	Osaka	17,411,857	127,580,000	29%	2.151879	1	2.00%
Kenya	1			Nairobi	Nairobi	4,112,322			39,802,000	10%		1	5.96%
Madagascar	1			Antananarivo	Antananarivo	1,740,322			19,625,000	9%		1	5.31%
Mali	1			Bamako	Bamako	2,209,225			13,010,000	17%		1	6.07%
Mexico	1			Mexico City	Mexico City	23,293,783	Guadalajara	4,205,153	107,550,697	22%	5.539343	1	5.97%
Mozambique	1			Maputo	Maputo	2,058,054			22,894,000	9%		1	5.69%
Nepal	1			Katmandu	Katmandu	1,687,102			29,331,000	6%		1	6.43%
North Korea	1			Pyŏngyang	Pyŏngyang	3,198,937			24,051,706	13%		1	0.02%
Peru	1			Lima	Lima	7,902,851			29,165,000	27%		1	8.00%
Phillipines	1			Manila	Manila	19,888,419			92,226,600	22%		1	7.18%
Portugal	1			Lisboa	Lisboa	2,638,211			10,631,800	25%		1	6.60%
Romania	1			Bucuresti	Bucuresti	2,177,669			21,496,700	10%		1	8.79%
Russia	1			Moscow	Moscow	14,837,510	St. Petersburg	4,798,526	141,868,000	10%	3.092097	1	5.18%
Saudi Arabia	1			Riyadh	Riyadh	5,150,000	Jeddah	3,600,000	25,721,000	20%	1.430556	1	4.54%
Senegal	1			Dakar	Dakar	2,535,431			12,534,000	20%		1	3.56%
Serbia	1			Beograd	Beograd	1,774,990			9,850,000	18%		1	0.99%
Somalia	1			Muqdisho	Muqdisho	1,663,223			9,133,000	18%		1	5.65%
South Korea	1			Seoul	Seoul	20,550,000	Busan	3,650,000	48,333,000	43%	5.630137	1	7.13%
Spain	1			Madrid	Madrid	5,804,829	Barcelona	4,233,638	45,828,172	13%	1.371121	1	5.34%
Sudan	1			Khartum	Khartum	9,514,261			42,272,000	23%		1	7.63%
Sweden	1			Stockholm	Stockholm	1,860,872	Göteborg	873,335	9,283,722	20%	2.130765	1	3.33%
Taiwan	1			Taipei	Taipei	8,422,488	Kaohsiung	2,718,589	23,027,672	37%	3.09811	1
Thailand	1			Bangkok	Bangkok	9,972,337			63,389,730	16%		1	6.41%
Uganda	1			Kampala	Kampala	1,876,485			32,710,000	6%		1	7.47%
UK	1			London	London	13,219,506	Manchester-Liverpool	5,163,631	82,062,200	16%	2.560118	1	5.82%
Ukraine	1			Kiev	Kiev	2,987,132	Donets’k	1,623,194	46,143,700	6%	1.84028	1	2.67%
Uzbekistan	1			Toshkent	Toshkent	3,235,029			27,488,000	12%		1	1.60%
Venezuela	1			Caracas	Caracas	4,368,552	Maracaibo	2,484,277	28,359,313	15%	1.75848	1	9.97%
Yemen	1			Şan’ā	Şan’ā	1,976,081			23,580,000	8%		1	11.39%
Zambia	1			Lusaka	Lusaka	2,851,411			12,935,000	22%		1	6.89%
Zimbabwe	1			Harare	Harare	3,124,683			12,523,000	25%		1	-8.00%
Andhra Pradesh			1	Hyderbad	Hyderbad	6,290,397	Visakhapatnam	1,511,687	76,210,007	8%	4.161177	1	5.1%
Assam			1	Bhubaneswar	Bhubaneswar	1,666,429	Raurkela	550,668	36,804,660	5%	3.026195	1	2.4%
Karnataka			1	Bangalore	Bangalore	6,466,271	Maisuru	1,230,039	52,850,562	12%	5.256964	1	5.6%
Maharashtra			1	Mumbai	Mumbai	21,347,412	Pune	5,273,211	96,878,627	22%	4.048276	1	4.6%
Rajasthan			1	Jaipur	Jaipur	3,102,808	Jodhpur	971,407	56,507,188	5%	3.194138	1	3.8%
Tamil Nadu			1	Chennai	Chennai	7,305,169	Coimbatore	1,644,224	62,405,679	12%	4.442928	1	5.1%
West Bengal			1	Kolkata	Kolkata	15,414,859	Asansol	1,317,369	80,176,197	19%	11.70125	1	4.8%
Arizona		1		Phoenix	Phoenix	4,281,899	Tucson	1,012,018	6,500,180	66%	4.23105	1	2.46%
Georgia		1		Atlanta	Atlanta	5,376,285	Savanna	329,329	9,685,744	56%	16.32497	1	1.63%
Indiana		1		Indianapolis	Indianapolis	1,715,459	Ft. Wayne	390,156	6,376,792	27%	4.396854	1	2.06%
Massachusetts		1		Boston	Boston	4,522,858	Worcester	781,352	6,497,967	70%	5.788502	1	2.24%
New Jersey		1		Trenton	Trenton	365,449	Atlantic City	270,644	8,682,661	4%	1.350294	1	1.58%
Tennessee		1		Nashville	Nashville	1,550,733	Memphis	1,285,732	6,214,888	25%	1.206109	1	2.17%