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Urban Structure and Growth

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  • Esteban Rossi-Hansberg
  • Mark L. J. Wright

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 underrepresentation 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. Copyright 2007, Wiley-Blackwell.

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Bibliographic Info

Article provided by Oxford University Press in its journal The Review of Economic Studies.

Volume (Year): 74 (2007)
Issue (Month): 2 ()
Pages: 597-624

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Handle: RePEc:oup:restud:v:74:y:2007:i:2:p:597-624

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  1. Esteban Rossi-Hansberg & Mark L.J. Wright, 2005. "Urban Structure and Growth," NBER Working Papers 11262, National Bureau of Economic Research, Inc.
  2. Henry G. Overman & Yannis Ioannides, 2000. "Zipf's law for cities: an empirical examination," LSE Research Online Documents on Economics, London School of Economics and Political Science, LSE Library 20136, London School of Economics and Political Science, LSE Library.
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  9. Gilles Duranton, 2002. "City Size Distributions As A Consequence of the Growth Process," CEP Discussion Papers, Centre for Economic Performance, LSE dp0550, Centre for Economic Performance, LSE.
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  16. Mark L.J. Wright & Esteban Rossi-Hansberg, 2004. "Firm Size Dynamics in the Aggregate Economy," 2004 Meeting Papers, Society for Economic Dynamics 878, Society for Economic Dynamics.
  17. Gilles Duranton, 2007. "Urban Evolutions: The Fast, the Slow, and the Still," American Economic Review, American Economic Association, American Economic Association, vol. 97(1), pages 197-221, March.
  18. Xavier Gabaix, 1999. "Zipf'S Law For Cities: An Explanation," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 114(3), pages 739-767, August.
  19. Gabaix, Xavier & Ioannides, Yannis M., 2004. "The evolution of city size distributions," Handbook of Regional and Urban Economics, Elsevier, in: J. V. Henderson & J. F. Thisse (ed.), Handbook of Regional and Urban Economics, edition 1, volume 4, chapter 53, pages 2341-2378 Elsevier.
  20. Chun-Chung Au & Vernon Henderson, 2002. "How Migration Restrictions Limit Agglomeration and Productivity in China," NBER Working Papers 8707, National Bureau of Economic Research, Inc.
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  23. Henderson, J. Vernon, 2005. "Urbanization and Growth," Handbook of Economic Growth, Elsevier, in: Philippe Aghion & Steven Durlauf (ed.), Handbook of Economic Growth, edition 1, volume 1, chapter 24, pages 1543-1591 Elsevier.
  24. Duncan Black & Vernon Henderson, 1999. "A Theory of Urban Growth," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 107(2), pages 252-284, April.
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