Urban structure and growth

Esteban Rossi-Hansberg and Mark Wright

No 381, Staff Report from Federal Reserve Bank of Minneapolis

Abstract: Most economic activity occurs in cities. This creates a tension between local increasing returns, implied by the existence of cities, and aggregate constant returns, implied by balanced growth. To address this tension, we develop a general equilibrium theory of economic growth in an urban environment. In our theory, variation in the urban structure through the growth, birth, and death of cities is the margin that eliminates local increasing returns to yield constant returns to scale in the aggregate. We show that, consistent with the data, the theory produces a city size distribution that is well approximated by Zipf's Law, but that also displays the observed systematic under-representation of both very small and very large cities. Using our model, we show that the dispersion of city sizes is consistent with the dispersion of productivity shocks found in the data.

Keywords: Urban; economics (search for similar items in EconPapers)
Date: 2006
New Economics Papers: this item is included in nep-dge, nep-geo and nep-ure
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (8)

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Related works:
Journal Article: Urban Structure and Growth (2007)
Working Paper: Urban Structure and Growth (2005)
Working Paper: Urban Structure and Growth (2004)
Working Paper: Urban structure and growth (2003)
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Persistent link: https://EconPapers.repec.org/RePEc:fip:fedmsr:381

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