Macroeconomic implications of agglomeration
AbstractThe authors construct a dynamic general equilibrium model of cities and use it to estimate the effect of local agglomeration on per capita consumption growth. Agglomeration affects growth through the density of economic activity: higher production per unit of land raises local productivity. Firms take productivity as given; produce using a technology that has constant returns in developed land, capital, and labor; and accumulate land and capital. If land prices are rising, as they are empirically, firms economize on land. This behavior increases density and contributes to growth. They use a panel of U.S. cities and our model's predicted relationship among wages, output prices, housing rents, and labor quality to estimate the net effect of agglomeration on local wages. The impact of agglomeration on the level of wages is estimated to be 2 percent. Combined with their model and observed increases in land prices, this estimate implies that agglomeration raises per capita consumption growth by 10 percent.
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Bibliographic InfoPaper provided by Federal Reserve Bank of Chicago in its series Working Paper Series with number WP-2010-02.
Date of creation: 2010
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- NEP-ALL-2010-02-20 (All new papers)
- NEP-DGE-2010-02-20 (Dynamic General Equilibrium)
- NEP-EFF-2010-02-20 (Efficiency & Productivity)
- NEP-GEO-2010-02-20 (Economic Geography)
- NEP-MAC-2010-02-20 (Macroeconomics)
- NEP-URE-2010-02-20 (Urban & Real Estate Economics)
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Blog mentionsAs found by EconAcademics.org, the blog aggregator for Economics research:
- Macroeconomic implications of agglomeration
by Christian Zimmermann in NEP-DGE blog on 2010-02-22 01:36:12
- Gerald A. Carlino, 2011. "Three keys to the city: resources, agglomeration economies, and sorting," Business Review, Federal Reserve Bank of Philadelphia, issue Q3, pages 1-13.
- Jan Eeckhout & Roberto Pinheiro & Kurt Schmidheiny, 2010.
"Spatial Sorting: Why New York, Los Angeles and DetroitAttract the Greatest Minds as well as the Unskilled,"
CESifo Working Paper Series
3274, CESifo Group Munich.
- Eeckhout, Jan & Pinheiro, Roberto & Schmidheiny, Kurt, 2010. "Spatial Sorting: Why New York, Los Angeles and Detroit attract the greatest minds as well as the unskilled," CEPR Discussion Papers 8151, C.E.P.R. Discussion Papers.
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