Working Paper: NBER ID: w26591
Authors: Gilles Duranton; Diego Puga
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; economic growth; human capital; entrepreneurship; planning regulations
JEL Codes: C52; D24; R12
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) | city productivity (O49) |
| City population growth (R23) | output (C67) |
| Urban costs (R29) | output (C67) |
| Agglomeration economies (R11) | earnings (J31) |
| Planning regulations (R52) | city expansion (R11) |
| Relaxing planning regulations (R38) | aggregate gains (E10) |