The Dynamic Urban Economy

In the previous three chapters we have concentrated on microeconomic theory, discussing in particular the location and production decisions of firms and of individuals. We now turn to look at the urban macroeconomy and specifically at the mechanisms underlying economic growth. The models we consider tend to assume a free market with no government direction and control and perfect mobility of both people and factors of production; unfortunately for economists these conditions are less common today than they were a century or so ago. The advent of urban planning has meant that many towns and cities expanded and developed in a semi-controlled environment, under the influence of either local or central government. The New Towns of the twentieth century are a classic example of urban centres developing in previously small villages offering little natural growth potential in the traditional sense—their growth has been induced by deliberate policy. Does this mean that the theories outlined below are of only academic interest? The answer is a firm no. Urban economic-growth models are important if we are to understand how cities developed in the past and they are still of use to planners and economists today. When planners decide to either alter the land usage in an existing city or to develop an entirely new centre, they need theories of growth to enable them to predict the effects of their actions in the longer term, for the urban centre itself, but also for its surrounding hinterland.