Working Paper: NBER ID: w9112
Authors: Gilles Duranton; Diego Puga
Abstract: Striking evidence is presented of a previously unremarked transformation of urban structure from mainly sectoral to mainly functional specialization. We offer an explanation showing that this transformation is inextricably interrelated with changes in firms' organization. A greater variety of business services for headquarters and of sector-specific intermediates for production plants within a city reduces costs, while congestion increases with city size. A fall in the costs of remote management leads to a transformation of the equilibrium urban and industrial structure. Cities shift from specializing by sector -- with integrated headquarters and plants -- to specializing mainly by function -- with headquarters and business services clustered in larger cities, and plants clustered in smaller cities.
Keywords: No keywords provided
JEL Codes: R30; L23; R12
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| urban growth (R11) | location of headquarters and production plants (L23) |
| shift from sectoral specialization (O14) | functional specialization (L23) |
| decline in Gini index of sectoral specialization (D31) | increase in functional specialization (O49) |
| increasing separation of management and production facilities (L23) | clustering in larger urban areas (R23) |
| larger cities (R12) | attract business services and management roles (L84) |
| smaller cities (R12) | specialize in production (L23) |