# **1. Introduction**

The sudden, global onset of the Covid-19 pandemic in March 2020 brought major disruptions to human activity worldwide. As the pandemic unfolded, governments around the world applied a variety of countermeasures to contain the spread of the virus as well as the economic damage it caused. The pandemic impacted urban economic activity in particular, given the central place of cities in global transport networks as well as the increased susceptibility to contagion that accompanies their high densities.

Indeed, whether the concentration of economic activity in large cities would survive the pandemic was one of the most hotly debated issues during the start of the pandemic. The role of population density during such a crisis is ex-ante ambiguous as there are two opposing forces at play: “healthpreserving behavior” and a “resilience effect”. On the one hand, denser cities are more prone to contagion risks during an outbreak,<sup>2</sup> which nudges households and firms to curb in-person economic activities more in denser areas to avoid health risks. Such **health-preserving behavior** includes both state-sanctioned and voluntary reductions of activities which require movement outside the home and interactions with others. Bisin and Moro (2022) show that incorporating a spatial dimension into the now well-known Susceptible, Infectious, and/or Recovered (SIR) model reveals that city density is a crucial determinant of epidemic diffusion – since density is proportional to an affected agent’s number of contacts. This is especially the case in densely populated cities in low- and middle-income countries where density is often associated with crowding in the form of slums and social distancing is difficult (Bhardwaj et al., 2020; Jedwab et al., 2021; Lall and Wahba, 2021).

On the other hand, historical experience suggests that denser cities may be more resilient to large negative shocks ( **city resilience** ). Numerous studies have demonstrated long-run persistence in the spatial distribution of economic activity, even in the face of very large adverse shocks. This persistence can arise as a result of various forces, including locational fundamentals (i.e., natural advantages); sunk investments in durable capital, including transport and utility networks and buildings (i.e., man-made advantages); agglomeration economies; and institutions (Davis and Weinstein, 2002; Bleakley and Lin, 2012; Henderson et al., 2018; Dell and Olken, 2019). In addition, cities can benefit from higher density if it entails higher levels of human capital, diversification of economic bases and higher capacities to provide public goods and services (Duranton and Puga 2004, 2014, 2020). In lower-income countries, more densely populated cities also tend to have higher levels of access to water, sanitation and hygiene (WASH) and health services (Henderson _et al._ , 2019; World Bank, 2009). If forward-looking economic agents believe that denser cities are more resilient, this may result in both households and firms locating in these cities instead of less dense cities when confronted by a large “symmetric” shock that affects all cities. For these reasons, density may also play a positive role in limiting the adverse economic impacts of Covid-19.

However, relatively little is known regarding the magnitudes of the pandemic’s impacts on cities or their determinants. Standard official statistics, such as for gross domestic product (GDP), lack the spatial and temporal granularity necessary for a robust analysis of such impacts. Hence, even for high-income countries, GDP data is rarely available for cities and, when it is, it tends to be at an annual frequency. Standard official statistics are also invariably published with a lag, which undermines the possibilities for “near real-time” analysis. This study circumvents the data availability issue by using high-frequency (monthly) nighttime lights data derived from the Visible Infrared Imaging

> 2 The higher risk of spread of contagious diseases in more densely populated cities has been cited by Glaeser as one of the “demons of density” – to quote, “ _If two people are close enough to exchange an idea face to face they are also close enough to exchange a contagious disease..._ ” (https://www.cfr.org/event/poor-world-citiesconversation-edward-glaeser).

2