Published Papers Urban Economics
Transportation infrastructure in the US (with Geetika Nagpal and Matt Turner) Abstract
Chapter in Economics of Infrastructure, edited by Ed Glaeser and Jim Poterba, NBER volume, forthcoming
Support for massive investments in transportation infrastructure, possibly with a change in the share of spending on transit, seems widespread. Such proposals are often motivated by the belief that our infrastructure is crumbling, that infrastructure causes economic growth, that current funding regimes disadvantage rural drivers at the expense of urban public transit, or that capacity expansions will reduce congestion. In fact, most US transportation infrastructure is not deteriorating and the existing scientific literature and does not show that infrastructure creates growth or reduces congestion. However, current annual expenditure on public transit buses
exceeds that on interstate construction and maintenance. The evidence suggests the importance of an examination of how funding is allocated across modes but not of massive new expenditures.
The production function for housing (with Laurent Gobillon and Pierre-Philippe Combes) Abstract
Accepted for publication, Journal of Political Economy
We propose a new nonparametric
approach to estimate the production function for housing. Our estimation treats output as a latent variable and relies on the first order condition for profit maximisation with respect to nonland inputs by competitive house builders combined with their zero profit condition. Differences in the demand for housing across locations lead to differences in land prices and, in turn, differences in nonland input investments. For parcels of a given size, we compute housing production by summing across the marginal
products of nonland inputs. We implement our methodology on newly built single family homes in France. After taking care of estimation concerns, we find that the production function for housing is reasonably well, though not perfectly, approximated by a Cobb Douglas function and close to constant returns after taking care of estimation concerns. We estimate an elasticity of housing production with respect to nonland inputs of about 0.65.
Delineating urban areas with building density (with Marie-Pierre de Bellefon, Pierre-Philippe Combes, and Laurent Gobillon) Abstract
Journal of Urban Economics, forthcoming
We develop a new dartboard methodology to delineate urban areas using detailed information about building location, which we implement using a map of all buildings in France. For each pixel, our approach compares actual building density after smoothing to counterfactual smoothed building density computed after randomly redistributing buildings. We define as urban any area with statistically significant excess building density. Within urban areas, extensions to our approach allow us to distinguish ‘core’ urban pixels and detect centres and subcentres. Finally, we develop novel one- and two-sided tests that provide a statistical basis to compare maps with different delineations, which we use to assess the robustness of our approach and to document large differences between our preferred delineation and the corresponding official one.
The costs of agglomeration: House and land prices in French Cities (with Pierre-Philippe Combes and Laurent Gobillon) Abstract
Review of Economic Studies, 2019, 86(4), 1556-1589
We develop a new methodology to estimate the elasticity of urban costs with respect to city population using French house and land price data. After handling a number of estimation concerns, we find that the elasticity of urban costs increases with city population with an estimate of about 0.03 for an urban area with 100,000 inhabitants to 0.08 for an urban area of the size of Paris. Our approach also yields a number of intermediate outputs of independent interest such as the share of housing in expenditure, the elasticity of unit house and land prices with respect to city population, and within-city distance gradients for house and land prices.
Refugees and development: Evidence from Tanzania (with Jean-François Maystadt) Abstract
Journal of Economic Geography, 2019, 19(2), 299-334
We exploit a 1991–2010 Tanzanian household panel to assess the effects of the temporary refugee inflows originating from Burundi (1993) and Rwanda (1994). We find that the refugee presence has had a persistent and positive impact on the welfare of the local population. We investigate the possible channels of transmission, underscoring the importance of a decrease in transport costs as a key driver of this persistent change in welfare. We interpret these findings as the ability of a temporary shock to induce a persistent shift in the equilibrium through subsequent investments rather than a switch to a new equilibrium in a multiple-equilibrium setting.
Urban form and driving: Evidence from US cities (with Matthew Turner) Abstract
Journal of Urban Economics, 2018, 108(0), 171-191
We estimate the effect of urban form on driving. We match the best available travel survey for the US to spatially disaggregated national maps that describe population density and demographics, sectoral employment and land cover, among other things. To address inference problems related to sorting and endogenous density, we develop an estimator that relies on an assumption of imperfect mobility and exploit quasi-random variation in subterranean geology. The data suggest that increases in density cause small decreases in individual driving. Applying our estimates to the observed distribution of density and driving in the US suggests that plausible densification policies cause decreases in aggregate driving that are small, both absolutely and relative to what might be expected from gas taxes or congestion charging.
Speed (with Victor Couture and Matt Turner) Abstract
Review of Economics and Statistics, 2018, 100(4), 725-739
We investigate determinants of driving speed in large US cities. We first estimate city level supply functions for travel in an econometric framework where the supply and demand for travel are explicit. These estimations allow us to calculate an index of driving speed and to rank cities by driving speed. Our data suggest that a congestion tax of about 3.5 cents per kilometer yields welfare gains of about 30 billion dollars per year, that centralized cities are slower, that cities with ring roads are faster, and that the provision of automobile travel in cities is subject to decreasing returns to scale.
The logic of agglomeration
] 2018, (with William R. Kerr)
New Oxford Handbook of Economic Geography, Gordon L. Clark, Maryann Feldman, Meric Gertler and Dariusz Wojcik, (eds), Oxford University Press, Oxford Abstract
This review discusses frontier topics in economic geography as they relate to firms and agglomeration economies. We focus on areas where empirical research is scarce but possible. We first outline a conceptual framework for city formation that allows us to contemplate what empiricists might study when using firm-level data to compare the functioning of cities and industries with each other. We then examine a second model of the internal structure of a cluster to examine possibilities with firm level data for better exposing the internal operations of clusters. An overwhelming theme of our review is the vast scope for enhancements of our picture of agglomeration with the new data that are emerging.
Agglomeration effects in ColombiaJournal of Regional Science
, 2016, 56(2), 210-238 Abstract
I estimate an elasticity of wages with respect to city population of about 5% for Colombian cities. This ﬁnding is robust to a number of econometric concerns. The second main ﬁnding is a negative effect of market access on wages. Third main ﬁnding regards stronger agglomeration effects in the informal sector. This third ﬁnding provides an explanation for a range of other negative ﬁndings, including only weak evidence in favour of human capital externalities, no evidence of a complementarity between cities and skills, and an absence of stronger agglomeration effects for older workers as would be predicted by the existence of learning effects. I do not ﬁnd measurable effects of roads or amenities on wages either.
Determinants of city growth in Colombia
Papers in Regional Science, 2016, 95(1), 101-132 Abstract
I develop an integrated approach to examine the drivers of population growth in Colombian cities between 1993 and 2010. Fertility plays an important role. Much of the higher growth of some Colombian cities can also be associated with higher wages. In turn, this wage advantage of some cities can be, in part, traced back to city education and industry shocks. I also ﬁnd that roads matter but obtained mixed evidence about the role of urban amenities and no evidence regarding measures of urban costs and other drivers of urban growth that have been commonly considered by past literature. Some determinants of long-run city growth are also explored.
A proposal to delineate metropolitan areas in ColombiaEconomia & Desarrollo
, 2015, 75(0), 169-210 Abstract
This chapter first discusses the necessity of defining metropolitan areas and current practice in several countries. It argues for the use of a simple algorithm that exploits cross-municipality commuting patterns. Municipalities are aggregated iteratively provided they send a share of their commuters above a given threshold to the rest of a metropolitan area. This algorithm is implemented on Colombian data and its robustness is assessed. Finally, the properties of the resulting spatial labour market networks are explored.
Roads and trade in Colombia
Economics of Transportation, 2015, 4(1), 16-36 Abstract
I estimate the effect of major roads within and between cities on the level and composition of trade for Colombian cities. I confirm that road distance between cities is a major impediment to trade. In addition, major roads within cities have a large effect on a city׳s exports and imports with an elasticity of approximately 0.20 estimated with ols and up to 0.50 with iv. If anything, the effects are stronger for the value than for the weight of exports. I interpret these results as city roads shifting economic activity in cities towards the production of tradable and somewhat lighter goods.
Urban land use
(with Diego Puga)Handbook of Regional and Urban Economics
, 2015, volume 5A, 467-560 Abstract
We provide an integrated treatment of the theoretical literature on urban land use inspired by the monocentric model, including extensions that deal with multiple endogenous business centers, various dimensions of heterogeneity, and durable housing. After presenting the theory and distilling its key empirical implications, we critically review the empirical literature on differences in prices and development across urban locations, patterns of location choices of heterogeneous households in cities, sprawl and residential decentralization, and employment decentralization.
Growing through cities in developing countries
World Bank Research Observer, 2015, 30(1), 39-73 Abstract
This paper examines the effects of urbanization on development and growth. It begins with a labor market perspective and emphasizes the importance of agglomeration economies, both static and dynamic. It then argues that more productive jobs in cities do not exist in a void and underscores the importance of job and firm dynamics. In turn, these dynamics are shaped by the broader characteristics of urban systems. A number of conclusions are drawn. First, agglomeration effects are quantitatively important and pervasive. Second, the productive advantage of large cities is constantly eroded and must be sustained by new job creation and innovation. Third, this process of creative destruction in cities, which is fundamental for aggregate growth, is determined in part by the characteristics of urban systems and broader institutional features. The paper highlights important differences between developing countries and more advanced economies. A major challenge for developing countries is to reinforce the role of their urban systems as drivers of economic growth.
The growth of cities
(with Diego Puga)Handbook of Economic Growth
, volume II, Philippe Aghion and Steven Durlauf (eds), Elsevier, 2014, 781-853, Amsterdam. Abstract
Why do cities grow in population, surface area, and income per person? Which cities grow faster and why? To these questions, the urban growth literature has offered a variety of answers. Within an integrated framework, this chapter reviews key theories with implications for urban growth. It then relates these theories to empirical evidence on the main drivers of city growth, drawn primarily from the United States and other developed countries. Consistent with the monocentric city model, fewer roads and restrictions on housing supply hinder urban growth. The fact that housing is durable also has important effects on the evolution of cities. In recent decades, cities with better amenities have grown faster. Agglomeration economies and human capital are also important drivers of city growth. Although more human capital, smaller firms, and a greater diversity in production foster urban growth, the exact channels through which those effects percolate are not clearly identified. Finally, shocks also determine the fate of cities. Structural changes affecting the broader economy have left a big footprint on the urban landscape. Small city-specific shocks also appear to matter, consistent with the recent wave of random growth models.
Productive cities: Sorting, selection, and agglomeration
(with Kristian Behrens and Frédéric Robert-Nicoud)
Journal of Political Economy, 2014, 122(3), 507-553 Abstract
Large cities produce more output per capita than small cities. This may occur because more talented individuals sort into large cities, because large cities select more productive entrepreneurs and firms, or because of agglomeration economies. We develop a model of systemsof cities that combines all three elements and suggests interesting complementarities between them. The model can replicate stylised facts about sorting, agglomeration, and selection in cities. It can also generate Zipf’s law for cities. Finally, it provides a useful framework within which to reinterpret existing empirical evidence.
Roads and trade: Evidence from the U.S.
(with Peter Morrow and Matthew Turner)
Review of Economic Studies, 2014, 81(2), 681-724 Abstract
We estimate the effects of interstate highways on the level and composition of trade for us cities. Highways within cities have a large effect on the weight of city exports with an elasticity of approximately 0.5. There is no discernible effect of highways on the total value of exports. Consistent with this, we find that cities with more highways specialize in sectors producing heavy goods.
Marshallian labor market pooling: Evidence from Italy
(with Monica Andini, Guido de Blasio and William C Strange)
Regional Science and Urban Economics, 2013, 43(6), 10008-1022 Abstract
This paper employs a unique Italian data source to take a comprehensive approach to labor market pooling. It jointly considers many different aspects of the agglomeration labor market relationship, including turnover, learning, matching, and hold up. It also considers labor market pooling from the perspective of both workers and firms and across a range of industries. Overall, the paper finds some support for theories of labor market pooling, but the support is weak. Specifically, there is a general positive relationship of turnover to local population density, which is consistent with theories of agglomeration and uncertainty. There is also evidence of onthejob learning that is consistent with theories of labor pooling, labor poaching, and hold up. In addition, the paper provides evidence consistent with agglomeration improving job matches. However, the labor market pooling gains that we measure are small in magnitude and seem unlikely to account for a substantial share of the agglomeration benefits accruing to Italian worker and firms.
The productivity advantages of large cities: Distinguishing agglomeration from firm selection
(with Pierre-Philippe Combes, Laurent Gobillon, DiegoPuga, and Sébastien Roux)
Econometrica 2012, 80(6), 2543-2594 Abstract
Firms are more productive, on average, in larger cities. Two main explanations have been offered: firm selection (larger cities toughen competition, allowing only the most productive to survive) and agglomeration economies (larger cities promote interactions that increase productivity), possibly reinforced by localized natural advantage. To distinguish between them, we nest a generalized version of a tractable firm selection model and a standard model of agglomeration. Stronger selection in larger cities left-truncates the productivity distribution, whereas stronger agglomeration right-shifts and dilates the distribution. Using this prediction, French establishment-level data, and a new quantile approach, we show that firm selection cannot explain spatial productivity differences. This result holds across sectors, city size thresholds, establishment samples, and area definitions.
Urban growth and transportation
(with Matt Turner)
Review of Economic Studies, 2012, 79(4), 1407-1440 Abstract
We estimate the effects of interstate highways on the growth of U.S. cities between 1983 and 2003. We find that a 10% increase in a city’s initial stock of highways causes about a 1.5% increase in its employment over this 20 year period. To estimate a structural model of urban growth and transportation, we rely on an instrumental variables estimation that uses a 1947 plan of the interstate highway system, an 1898 map of railroads, and maps of the early explorations of the U.S. as instruments for 1983 highways.
Sorting and local wage and skill distributions in France
(with Pierre-Philippe Combes, Laurent Gobillon, and Sébastien Roux)
Regional Science and Urban Economics, 2012, 42(6), 913-930 Abstract
This paper provides descriptive evidence about the distribution of wages and skills in denser and less dense employment areas in France. We confirm that on average, workers in denser areas are more skilled. There is also strong over-representation of workers with particularly high and low skills in denser areas. These features are consistent with patterns of migration including negative selection of migrants to less dense areas and positive selection towards denser areas. Nonetheless migration, even in the long-run, accounts for little of the skill differences between denser and less dense areas. Finally, we find marked differences across age groups and some suggestions that much of the skill differences across areas can be explained by differences between occupational groups rather than within.
The effects of land transfer taxes on real estate markets: Evidence from a natural experiment in Toronto
(with Benjamin Dachis and Matt Turner)
Journal of Economic Geography, 2012, 12(2), 327-354 Abstract
Taxes levied on the sale or purchase of real estate are pervasive but little studied. By exploiting a natural experiment arising from Toronto’s imposition of a Land Transfer Tax (LTT) in early 2008, we estimate the impact of real estate transfer taxes on the market for single family homes. Our data show that Toronto’s 1.1% tax caused a 15% decline in the number of sales and a decline in housing prices about equal to the tax. Relative to an equivalent property tax, the associated welfare loss is substantial, about 1forevery8 in tax revenue. The magnitude of this welfare loss is comparable to those associated with better known interventions in the housing market. Unlike many possible tax reforms, eliminating existing LTTs in favour of revenue equivalent property taxes appears straightforward.
The fundamental law of road congestion: Evidence from U.S. cities
(with Matt Turner)
American Economic Review, 2011, 101(6), 2616-2652 Abstract
We investigate the effect of lane kilometers of roads on vehicle-kilometers traveled (VKT) in US cities. VKT increases proportionately to roadway lane kilometers for interstate highways and probably slightly less rapidly for other types of roads. The sources for this extra VKT are increases in driving by current residents, increases in commercial traffic, and migration. Increasing lane kilometers for one type of road diverts little traffic from other types of road. We find no evidence that the provision of public transportation affects VKT. We conclude that increased provision of roads or public transit is unlikely to relieve congestion. (JEL R41, R48)
Assessing the effects of local taxation using microgeographic data
(with Henry Overman and Laurent Gobillon)
Economic Journal, 2011, 121(555), 1017-1046 Abstract
We study the impact of local taxation on the location and growth of firms. Our empirical methodology pairs establishments across jurisdictional boundaries to estimate the impact of taxation. Our approach improves on existing work as it corrects for unobserved establishment heterogeneity, for unobserved time-varying site-specific effects and for the endogeneity of local taxation. Applied to data for English manufacturing establishments, we find that local taxation has a negative impact on employment growth but no effect on entry.
The identification of agglomeration economies
(with Pierre-Philippe Combes, and Laurent Gobillon)
Journal of Economic Geography, 2011, 11(2), 253-266 Abstract
Measures of urban productivity are typically positively associated with city population. But is this relationship causal? We discuss the main sources of bias in the proper identification of agglomeration effects. We also assess a variety of solutions that have been proposed in the literature to deal with them.
Is the division of labour limited by the extent of the market? Evidence from French cities (with Hubert Jayet) Journal of Urban Economics, 2011, 69(1), 56-71 Abstract
This paper provides supportive evidence to the notion that the division of labour is limited by the extent of the (local) market. We first propose a theoretical model. Its main prediction is that scarce specialists occupations are over-represented in large cities. Using census data for French cities, we find strong empirical support for this prediction.
The economics of clusters: Evidence from France
(with Philippe Martin, Thierry Mayer, and Florian Mayneris)
Book, Oxford University Press, 2010 Abstract
The development of clusters of economic activity is an important feature of industrial policy. Industry clusters have long fascinated economists and geographers alike, the most renowned being Silicon Valley which is seen by many as the blueprint for regional development, innovation, and growth. Several clusters have also developed across Europe, including SiliconFen in Cambridge and Minalogic in Grenoble, and in recent years cluster policies have become popular among policy makers as a useful tool for informing decisions on industrial, regional, and public policy. This book looks at the mechanisms at work behind cluster dynamics, the gains that can be expected from increased clustering, and the determinants of cluster policies. Focusing on France, it provides a theoretical and empirical study of clusters, their success and failures, and the policy lessons that can be applied to the wider international community. France is particularly interesting because there is a long tradition of strong government intervention regarding the location of economic activity, and cluster initiatives are relatively unified across the country. This book shows that, whilst gains from clusters do exist, some firms tend to cluster too much and that spatial agglomeration is only successful to a point, after which congestion effects can offset these gains. It questions the need and the feasibility of cluster policies aimed at interfering directly in the concentration process of firms, and thus looks beyond the general enthusiasm for clusters.
From cities to productivity and growth in developing countries
Canadian Journal of Economics, 2008, 41(3), 689-736 Abstract
This paper reviews the evidence about the effects of urbanization and cities on productivity and economic growth in developing countries using a consistent theoretical framework. As in developed economies, there is strong evidence that cities in developing countries bolster productive efficiency. Regarding whether cities promote self-sustained growth, the evidence is suggestive but ultimately inconclusive. These findings imply that the traditional agenda of aiming to raise within-city efficiency should be continued. Furthermore, reducing the obstacles to the reallocation of factors across cities is also desirable.
Spatial wage disparities: Sorting matters!
(with Pierre-Philippe Combes and Laurent Gobillon) Journal of Urban Economics, 2008, 63(2), 723-742 Abstract
Spatial wage disparities can result from spatial differences in the skill composition of the workforce, in non-human endowments, and in local interactions. To distinguish between these explanations, we estimate a model of wage determination across local labour markets using a very large panel of French workers. We control for worker characteristics, worker fixed effects, industry fixed effects, and the characteristics of the local labour market. Our findings suggest that individual skills account for a large fraction of existing spatial wage disparities with strong evidence of spatial sorting by skills. Interaction effects are mostly driven by the local density of employment. Not controlling for worker heterogeneity leads to very biased estimates of interaction effects. Endowments only appear to play a small role.
Exploring the detailed location patterns of U.K. manufacturing industries using microgeographic data
(with Henry Overman)
Journal of Regional Science, 2008, 48 (1), 313 – 343 Abstract
We use a point-pattern methodology to explore the detailed location patterns of U.K. manufacturing industries. In particular, we consider the location of entrants and exiters versus continuing establishments, domestic- versus foreign-owned, large versus small, and affiliated versus independent. We also examine colocalization between vertically-linked industries. Our analysis provides a set of new stylized facts and confirmation for others.
Rising trade costs? Agglomeration and trade with endogenous transaction costs
(with Michael Storper)
Canadian Journal of Economics, 2008, 41 (1), 292 – 319 Abstract
While transport costs have fallen, the empirical evidence also points at rising total trade costs. In a model of industry location with endogenous transaction costs that seeks to replicate features from the machinery industry, we show how and under which conditions a decline in transport costs can lead to an increase in the total cost of trade. The subtle relationship between (endogenous) transport costs and the sensitivity of trade to distance is also explored.
Urban evolutions: The fast, the slow, and the still
American Economic Review, 2007, 97 (1), 197-221 Abstract
With the use of French and US data, new and systematic evidence is provided about the rapid location changes of industries across cities (the fast). Cities are also slowly moving up and down the urban hierarchy (the slow), while the size distribution of cities is skewed to the right and very stable (the still). The model proposed here reproduces these three features. Small, innovation-driven shocks lead to the churning of industries across cities. Then, cities slowly grow or decline following net gains or losses of industries. These changes occur within a stable distribution. The quantitative implications of the model are also explored. (JEL R12, R32)
Some foundations for Zipf’s law: Product proliferation and local spillovers
Regional Science and Urban Economics, 2006, 36(4), 543-563 Abstract
This paper embeds the canonical model of endogenous growth with product proliferation developed by Romer [Romer, P.M., 1990. Endogenous technical change. Journal of Political Economy 98, S71–S102] into a simple urban framework. This yields a reduced form isomorphic to the popular statistical device developed by Simon [Simon, H., 1955. On a class of skew distribution functions. Biometrika 42, 425–440], which in turn can yield Zipf’s law for cities. The stochastic outcomes of purposeful innovation and local spillovers can thus serve as foundations for random growth models.
Cities and workplace communication: Some quantitative French evidence
(with Sylvie Charlot)
Urban Studies, 2006, 43(8), 1365-1394 Abstract
This paper uses a unique labour force survey to document workplace communication patterns in urban, suburban and rural areas. A number of interesting stylised facts are distilled relating to workplace communication: its intensity, within-firm communication, communication external to the firm and the media being used with a special focus on information technologies. The paper also investigates the complementarities across different media of communication and the evolution over time of workplace communication patterns. It is found that cities foster communication external to the firm and the use of telecommunications. By contrast, the hypothesis of a greater prevalence of face-to-face communication in cities does not receive much empirical validation. Also, complementarities across media do not lend much support to popular predictions about the forthcoming demise of cities following the replacement of face-to-face meetings by telecommunications.
Labour pooling, labour poaching, and spatial clustering
(with Pierre-Philippe Combes)
Regional Science and Urban Economics, 2006, 36(1), 1-28 Abstract
When firms cluster in the same local labour market, they face a trade-off between the benefits of labour pooling (i.e., access to workers whose knowledge help reduce costs) and the costs of labour poaching (i.e., loss of some key workers to competition and a higher wage bill to retain the others). We explore this tradeoff in a duopoly game. Depending on market size, on the degree of horizontal differentiation between goods, and on worker heterogeneity in terms of knowledge transfer cost, we characterise the strategic choices of firms regarding locations, wages, poaching and prices. Our results show that co-location, although it is always efficient in our framework, is not in general the non-cooperative equilibrium outcome.
Agglomeration and the adjustment of the spatial economy
(with Pierre-Philippe Combes and Henry Overman)
Papers in Regional Science, 2005, 84(3), 311-349 Abstract
We consider the literature on urban systems and New Economic Geography to examine questions concerning agglomeration and how areas respond to shocks to the economic environment. We first propose a diagrammatic framework to compare the two approaches. We then use this framework to study a number of extensions and to consider several policy relevant issues.
Testing for localisation using micro-geographic data
(with Henry Overman)
Review of Economic Studies, 2005, 72(4), 1077-1106 Abstract
To study the detailed location patterns of industries, and particularly the tendency for industries to cluster relative to overall manufacturing, we develop distance-based tests of localization. In contrast to previous studies, our approach allows us to assess the statistical significance of departures from randomness. In addition, we treat space as continuous instead of using an arbitrary collection of geographical units. This avoids problems relating to scale and borders. We apply these tests to an exhaustive U.K. data-set. For four-digit industries, we find that (i) 52% of them are localized at a 5% confidence level, (ii) localization mostly takes place at small scales below 50 km, (iii) the degree of localization is very skewed, and (iv) industries follow broad sectoral patterns with respect to localization. Depending on the industry, smaller establishments can be the main drivers of both localization and dispersion. Three-digit sectors show similar patterns of localization at small scales as well as a tendency to localize at medium scales.
From sectoral to functional urban specialisation
(with Diego Puga)
Journal of Urban Economics, 2005, 57(2), 343-370 Abstract
Striking evidence is presented of a previously unremarked transformation of urban structure from mainly sectoral to mainly functional specialisation. We offer an explanation showing that this transformation is inextricably interrelated with changes in firms’ organisation. 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 specialising by sector—with integrated headquarters and plants—to specialising mainly by function—with headquarters and business services clustered in larger cities, and plants clustered in smaller cities.
Communication externalities in cities
(with Sylvie Charlot)
Journal of Urban Economics, 2004, 56(3), 581-613 Abstract
To identify communication externalities in French cities, we exploit a unique survey recording workplace communication of individual workers. Our hypothesis is that in larger and/or more educated cities, workers should communicate more. In turn, more communication should have a positive effect on wages. By estimating both an earnings and a communication equation, we find evidence of communication externalities. In larger and more educated cities, workers communicate more and in turn this has a positive effect on their wages. Depending on the estimates, we find that 13 to 22% of the effects of a more educated and larger city on wages percolate through this channel.
Microfoundations of urban agglomeration economies
(joint with Diego Puga)
Handbook of Regional and Urban Economics, Volume 4, 2004, edited by J. V. Henderson and J.-F. Thisse, 2063-2117. Abstract
This handbook chapter studies the theoretical micro-foundations of urban agglomeration economies. We distinguish three types of micro-foundations, based on sharing, matching, and learning mechanisms. For each of these three categories, we develop one or more core models in detail and discuss the literature in relation to those models. This allows us to give a precise characterisation of some of the main theoretical underpinnings of urban agglomeration economies, to discuss modelling issues that arise when working with these tools, and to compare different sources of agglomeration economies in terms of the aggregate urban outcomes they produce as well as in terms of their normative implications.
Mind the gaps: The evolution of regional inequalities in the U.K. 1982-1997
(with Vassilis Monastiriotis)
Journal of Regional Science, 2002, 42(2), 219-256 Abstract
In this paper we apply earnings equations for U.K. regions over 1982–1997. We find evidence of rapid convergence across regions regarding the determinants of individual wages (i.e., regional fixed-effects, gender gaps, and returns to education and experience). In contrast, data on average regional earnings point to a worsening of U.K. regional inequalities and a rise in the North-South gap. Education accounts for most of the discrepancy between aggregate divergence and disaggregated convergence. First, London gained because its workforce became relatively more educated over the period. Second, returns to education increased nationwide, which favored the most educated regions (i.e., London). Third, returns to education were initially lower in London but they (partially) caught up with the rest of the country. Had returns to education and their distribution across U.K. regions remained stable over the period, the U.K. North-South divide would have decreased.
Nursery cities: Urban diversity, process innovation, and the life-cycle of product
(with Diego Puga)
American Economic Review, 2001, 91(5), 1454-1477 Abstract
This paper develops microfoundations for the role that diversified cities play in fostering innovation. A simple model of process innovation is proposed, where firms learn about their ideal production process by making prototypes. We build around this a dynamic general-equilibrium model, and derive conditions under which diversified and specialized cities coexist. New products are developed in diversified cities, trying processes borrowed from different activities. On finding their ideal process, firms switch to mass production and relocate to specialized cities where production costs are lower. We find strong evidence of this pattern in establishment relocations across French employment areas 1993-96.
Diversity and specialisation in cities: Why, where and when does it matter?
(with Diego Puga)
Urban Studies, 2000, 37 (3), 533-555 Abstract
Why are some cities specialised and others diversified? What are the advantages and disadvantages of urban specialisation and diversity? To what extent do the structure of cities and the activities of firms and people in them change over time? How does the sectoral composition of cities influence their evolution? To answer these and related questions, we first distil some key stylised facts from the empirical literature on cities and the composition of their activities. We then turn to a review of different theories looking at such issues, and study the extent to which these theories contribute to the understanding of the empirical regularities.
Urban structure, urbanization and growth
Chapter in Economics of Cities, edited by J.-M. Huriot and J. Thisse, Cambridge University Press, 2000 Abstract
Since cities are likely to play an even more predominant role in the global economy in the future than they do at present, it is important to understand how urban centers are created, grow, and function in the process of generating and distributing wealth. This integrated collection of essays exploring the economic theory of cities assembles work by a number of the world’s leading exponents in North America, the UK/Europe, and Japan. Topics investigated include cities and agglomeration, urban systems, urbanization and growth, and cities and factor markets. The perspectives the editors and contributors offer have strong connections with several branches of modern economics, including industrial organization, public economics, international trade, and endogenous growth and economic development.
Distance, land, and proximity: Economic analysis and the evolution of cities
Environment and Planning A, 1999, 31 (12), 2169-2188 Abstract
The author attempts to provide a synthesis of the long-run evolution of cities by taking an economic perspective. He defends the idea that urban growth for preindustrial cities has been limited by the tyranny of distance. Then he argues that technological progress, by fostering mobility, has reinforced economies of agglomeration and thus allowed for larger cities. This has led to the development of industrial cities and the dominance of the tyranny of distance. Nowadays, however, technological progress in communications and telecommunications seems to be challenging the rationale for agglomeration in cities as more and more economic interactions can be realized at arm’s length. Increasing mobility may have turned into a threat for cities, hence the prediction about the demise of cities. Nonetheless, it is argued that the `tyranny of proximity’ may provide a strong glue to keep postindustrial cities together.
Financing productive local public goods
(with S. Déo)
Journal of Urban Economics, 1999, 45 (2), 264-286 Abstract
Public economics typically assumes that local public goods only affect the utility of consumers. We analyze the case of purely productive local public goods within standard growth models. Investment in the public good enhances productivity only in the jurisdiction where it takes place. Capital, as well as people, is perfectly mobile. After characterizing the first-best equilibrium, we show that its decentralization to fiscally independent jurisdictions is more demanding than with local public consumer goods. In particular, efficient decentralization cannot be obtained with competitive land developers providing the public good through a simple land capitalization scheme.
Labor specialization, transports costs and city size
Journal of Regional Science, 1998, 38 (4), 553-575 Abstract
This paper proposes a simple model of pre-industrial urbanization. Agglomeration stems from increasing returns generated by the specialization of labor, whereas dispersion is provoked by the transport costs of the agricultural good. Considering the existence of some urban institutions (in particular guilds), the equilibrium size of cities is derived and it is efficient. Within this framework, the effects of urban domination (e.g., taxation of agriculture) and the emergence of primate cities are explored. Finally, the transition between early and modern urbanization is studied.