Working Paper: CEPR ID: DP3577
Authors: Gilles Duranton
Abstract: The size distribution of cities in many countries follows some broadly regular patterns. Any good theory of city size distributions should (i) be able to account for this regularity, but also (ii) rely on a plausible economic mechanism and (iii) be consistent with other fundamental features of cities like the existence of agglomeration economies and crowding costs. Unlike the previous literature, the model proposed here satisfies these three requirements. It views small innovation-driven technological shocks as the main engine behind the growth and decline of cities. Cities grow or decline as they win or lose industries following new innovations. Formally, this is achieved by embedding the quality-ladder model of growth developed by Grossman and Helpman (1991) in an urban framework.
Keywords: Agglomeration economies; City-size distribution; Quality-ladder models of growth
JEL Codes: O18; R11; R12
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| technological shocks (O33) | city size distributions (R12) |
| small innovation-driven technological shocks (O39) | growth and decline of cities (R11) |
| cities gaining industries due to innovations (O14) | changes in city size (R12) |
| agglomeration economies (R11) | probability of innovation in larger cities (R12) |
| larger cities (R12) | more innovative (O36) |
| agglomeration economies outweighing crowding costs (R11) | probability of innovation increases more than proportionately to city size (R12) |
| probability of innovation (O35) | skewed distribution of city sizes (R12) |