All Articles

The capital city effect


Mike Keogh (Associate Director of Research & Strategy) discusses how it is interesting to note a country's capital city effect, by looking at a nation’s prosperity without its capital.


In the UK, where debate centres on a north-south divide, it is telling to highlight that by factoring out London and its residents, GDP per capita would shrink by 11%. A France without Paris would decrease economic output per capita by 15%. The situation is the same in many European countries, albeit far less pronounced in Spain and Italy, with a reduction of 6% and 2% per capita respectively. There is, however, one exception: Germany, whereby output per capita nationally would actual rise marginally without Berlin, reflecting Germany’s Federal state and the strength of its regional cities. 


How does Europe compare globally? Well in the US, Australia* and China, the capital’s influence on output per capita is far less dominant than that witnessed across broad Europe. Even Japan, factoring out Tokyo and its residents, would only see output per capita decline 5.5%. This seems light given the dominance of Tokyo, but it is a factor of its demographic importance. Whilst Tokyo accounts for 33% of output and 30% of Japan’s population, in France, Paris delivers 30% towards output, but accounts for only 18% of the population. Similarly, in the UK, London is responsible for 23% of output, but just 13% of the population. 

Without a notable change in government policy to re-distribute wealth, the growing dominance of particular global cities is only going to grow. 



 Fig.1 Capital city effect


*still only 1.4% factoring out Sydney, and not Canberra

This article is intended solely for the use of professionals and is not for general public distribution. Any assumptions made or opinions expressed are as of the dates specified or if none at the article date and may change as subsequent conditions vary. In particular, the article has been prepared by reference to current tax and legal considerations that may alter in the future. The article may contain "forward-looking" information or estimates that are not purely historical in nature. Such information may include, among other things, illustrative projections and forecasts. There is no guarantee that any projections or forecasts made will come to pass. International investing involves risks, including risks related to foreign currency, limited liquidity particularly where the underlying asset comprises real estate, less government regulation in some jurisdictions, and the possibility of substantial volatility due to adverse political, economic or other developments. Past performance is no guarantee of future performance. The value of investments and the income from them may go down as well as up and are not guaranteed. Rates of exchange may cause the value of investments to go up or down. Any favourable tax treatment is subject to government legislation and as such may not be maintained. The valuation of property is generally a matter of valuer’s opinion rather than fact. The amount raised when a property is sold may be less than the valuation. Nothing in this article is intended or should be construed as advice. The document is not a recommendation to sell or purchase any investment. It does not form part of any contract for the sale or purchase of any investment. TH Real Estate is a name under which Henderson Real Estate Asset Management Limited provides investment products and services. Issued by Henderson Real Estate Asset Management Limited (reg. no. 2137726), (incorporated and registered in England and Wales with registered office at 201 Bishopsgate, London EC2M 3BN) which is authorised and regulated by the Financial Conduct Authority to provide investment products and services. Telephone calls may be recorded and monitored. COMP201600397

Michael Keogh

Mike Keogh

Director of Research

Mike's biography