Urban Structure and Growth

Mark Wright and Esteban Rossi-Hansberg

No 33, 2004 Meeting Papers from Society for Economic Dynamics

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 theory of economic growth in an urban environment. We show how the urban structure is the margin that eliminates local increasing returns to yield constant returns to scale in the aggregate, thereby implying a city size distribution that is well described by a power distribution with coefficient one: Zipf's Law. Under strong assumptions our theory produces Zipf's Law exactly. More generally, it produces the systematic deviations from Zipf's Law observed in the data, namely the under-representation of small cities and the absence of very large ones. In these cases, the model identifies the standard deviation of industry productivity shocks as the key parameter determining dispersion in the city size distribution. We present evidence that the dispersion of city sizes is consistent with the dispersion of productivity shocks in the data.

Keywords: Balanced Growth; Economic Growth; Scale Effects; Size Distribution of Cities; Zipf's Law (search for similar items in EconPapers)
JEL-codes: E0 O4 R0 (search for similar items in EconPapers)
Date: 2004
New Economics Papers: this item is included in nep-geo and nep-ure
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Citations: View citations in EconPapers (15)

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Related works:
Journal Article: Urban Structure and Growth (2007)
Working Paper: Urban structure and growth (2006)
Working Paper: Urban Structure and Growth (2005)
Working Paper: Urban structure and growth (2003)
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