Working Paper: CEPR ID: DP14215
Authors: Diego Puga; Gilles Duranton
Abstract: We develop an urban growth model where human capital spillovers foster entrepreneurship and learning in heterogenous cities. Incumbent residents limit city expansion through planning regulations so that commuting and housing costs do not outweigh productivity gains. The model builds on strong microfoundations, matches key regularities at the city and economy-wide levels, and generates novel predictions for which we provide evidence. It can be quantified relying on few parameters, provides a basis to estimate the main ones, and remains transparent regarding its mechanisms. We examine various counterfactuals to assess quantitatively the effect of cities on economic growth and aggregate income.
Keywords: urban growth; agglomeration economies; urban costs; planning regulations; city size distributions
JEL Codes: C52; R12; D24
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| human capital spillovers (J24) | entrepreneurship (M13) |
| entrepreneurship (M13) | productivity (O49) |
| productivity (O49) | economic growth (O49) |
| city growth (R11) | human capital accumulation (J24) |
| planning regulations (R52) | city expansion (R11) |
| city expansion (R11) | commuting costs (R48) |
| city expansion (R11) | housing costs (R21) |
| urban costs (R29) | city population (R23) |
| relaxing planning regulations (R38) | economic gains (O49) |