Chicken or Egg? The PVAR Econometrics of Transportation

To analyze the mutually dependent relationship between local economic performance and the demand for and supply of transport services, we employ the structural panel VAR method that is popular in the macroeconomic literature, but which has not previously been applied to the modeling of within-city dynamics of transportation. We focus on a within-city panel of Berlin, Germany, during the heyday of the construction of its dense public transit network (1880-1914). Our results suggest that economic outcomes and supply of transport infrastructure mutually determine each other. Both transport demand and supply seem to be driven more by firms than by residents.