The Economics of Smart City Policies

Remarkable academic interest and substantial funding from national and supranational bodies have been concentrating on the topic of smart cities; consequently, smart city policies have attracted large amounts of funding. However, no empirical evidence is to date available on the economic rationale of these policies. In particular, while few studies deal with the impact of smart urban characteristics and policies on urban performance, to date the link between smart features and policies, on the one hand, and urban performance on the other, has never been explored. In this paper we address this gap by empirically verifying whether smart urban policies foster urban economic growth. We assume that, although smart urban characteristics are growth-enhancing in the long run, they have only an indirect effect on urban performance. This assumption is tested by means of an Instrumental Variables approach whereby urban performance is explained by Smart Urban Policies, along with a set of control variables. The model is tested on a database of 309 European metropolitan areas, collected for this analysis and containing information on both smart urban characteristics and the intensity of smart policies. Our empirical results suggest that smart city policy intensity is associated with a better urban economic performance. Moreover, instrumenting smart policies with smart urban characteristics suggests that the causality direction goes from policy intensity to growth, and not vice versa (thus ruling out reverse causality). Policy suggestions based on these findings are finally provided.