Working Paper: CEPR ID: DP2971
Authors: Gilles Duranton; Diego Puga
Abstract: We document and then develop a model explaining and relating changes in firms? organization and in urban structure. Sharing of business services by headquarters and of sector-specific intermediates by production plants within a city reduces costs, while congestion increases with city size. A fall in the costs of remote management leads to a shift in urban structure, from a configuration where cities specialize by sector and host integrated headquarters and production plants, to a configuration where cities specialize by function, with headquarters from different sectors and business services clustered in a few large cities and production plants from each sector clustered in smaller separate cities.
Keywords: business services; cities; functional specialization; headquarters
JEL Codes: L23; R12; R30
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| decrease in the costs of remote management (D23) | shift from sectoral specialization to functional specialization in cities (O14) |
| shift from sectoral specialization to functional specialization in cities (O14) | clustering of headquarters from different sectors in larger cities (R32) |
| decrease in the costs of remote management (D23) | concentration of production plants in smaller cities (R32) |
| decrease in the costs of remote management (D23) | firms opt for multilocation structures (R30) |
| firms opt for multilocation structures (R30) | altering urban specialization (R11) |