with the natural experiment of Berlin’s division in the aftermath of the Second World War and its reunification following the fall of the Iron Curtain. The division of the city severed all local economic interactions between East and West Berlin, which corresponds in the model to prohibitive trade and commuting costs and no production and residential externalities between these two parts of the city.

Berlin’s division and reunification provides a natural experiment for modelling the organization of economic activity within cities

To provide evidence on the resulting impact on the organization of economic activity within the city, we make use of a remarkable and newly collected data set for Berlin, which includes data on land prices, employment by place of work (which we term ‘workplace employment’), and employment by placeSecond World War, with the central business district located in the district ‘Mitte’ – just east of the future line of the Berlin Wall. Around this central point, there were concentric rings of progressively lower land prices, including two areas in the future West Berlin – one around the Kurfuerstendamm and the other just west of the future line of the Berlin Wall, close to the Anhalter Bahnhof (see Panel B).

Following the division of Berlin, the second of these land price peaks was eliminated, as this area around the former Anhalter Bahnhof ceased to be an important centre of commercial and retail activity (see Panel C).

Following the reunification of Berlin, there was a re-emergence of high land price values in the pre-war central business district in Mitte (see