According to advocates of New Urbanism, one of the goals of public investment in rail transit is to encourage the growth of mixed-use transit-oriented development, defined as a high-density mix of residential and commercial uses within walking distance of rail stations.  By reducing transportation costs for residents in the surrounding neighborhood, new transit stations should result in increased land values, spurring higher density development and higher-value uses.  Previous studies have attempted to identify the impacts of rail transit investments on land values, residential real estate, and population characteristics (Baum-Snow and Kahn 2005; Bollinger and Ihlanfeldt 1997; Giuliano and Agarwal 2010; Kahn 2007; Winston and Maheshri 2007).  However, little research to date has examined whether rail investment stimulates economic development in the form of retail activity, which is a key component of mixed-use development.  As a land use class, retail should be attracted to neighborhoods around rail stations: the increased pedestrian traffic generated by transit riders should increase business for nearby stores.  Access to retail services, such as grocery stores, pharmacies and restaurants, has important quality of life implications.  Therefore to the extent that rail investments improve the quantity or quality of retail, especially in previously low-income neighborhoods, this would represent a valuable social benefit that might serve to justify public expenditures.

This paper examines the impact of investments in rail infrastructure on retail activity in several large California cities.  Over the past 20 years, five of California’s largest metropolitan areas – Los Angeles, Sacramento, San Diego, San Francisco, and San Jose – have expanded existing rail systems or built new ones, offering an opportunity to investigate changes in retail activity surrounding new rail stations and along rail lines.  Using the National Establishment Time Series (NETS) data, I investigate whether rail stations attract new formation of stores (“births”), relocation of existing stores from other locations, and store closings (“deaths”), to determine whether new transit stations generate a net growth in retail activity or a redistribution of existing activity.  I further examine what retail segments are most affected by transit investments.  There is considerable variation in the types of neighborhoods that received new transit stops, both within and across MSAs, offering the chance to investigate differential impacts of transit on retail by prior economic and demographic characteristics, such as resident income and racial composition.  Variation in the timing of transit investments also allows me to test for changes in impacts over time.  This paper tests whether public investments in transit have in fact spurred economic development in surrounding neighborhoods, as predicted by advocates of New Urbanism, and in particular whether low-income neighborhoods that receive transit stations have seen improvements in the type of retail that directly impacts quality of life.