Has September 11 Affected New York City’s Growth Potential?

[...]In this article, we analyze the effects of September 11 on thelonger run prospects for the New York City economy. We findthat, on the one hand, several downside risks to the city’sgrowth outlook have arisen. In a worst-case scenario, theconcentration of the attack on Lower Manhattan has raised thepossibility that financial firms might relocate outside the city,which could generate a cumulative downward spiral of job andincome growth. On the other hand, the city’s industrialstructure and its quality-of-life amenities—namely, anindustrial mix weighted toward high-growth sectors and anenvironment desirable to workers and firms—suggestfavorable economic prospects. However, whether or not theseprospects translate into actual growth going forward dependsto a large degree on the city’s policy response to the economicpressures arising from the attack. The key elements of thisresponse will be the ability to avoid budgetary decisions that reduce the long-run attractiveness of a New York City locationand, through rebuilding, to maintain the productivity of thecity’s capital stock.[...]