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Industry Churning and the Evolution of Cities: Evidence for Germany

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  • Findeisen, Sebastian

    ()
    (University of Mannheim)

  • Suedekum, Jens

    ()
    (Heinrich Heine University Düsseldorf)

Abstract

In this paper we show that the recent model by Duranton (AER, 2007) performs remarkably well in replicating the city size distribution of West Germany, much better than the simple rank-size rule known as Zipf’s law. The main mechanism of this theoretical framework is the “churning” of industries across cities. Little is known so far about the determinants of local industry turnover, however. We present an empirical analysis of the excess churning index for West German cities, which describes the strength of intra-city industry reallocations that has occurred over time. We find that human capital is a key driver of growth and local industrial change, but only among successful cities. Industrial change within unsuccessful cities is strongly driven by the disappearance of old-fashioned and declining industries such as agriculture or mining. On a more general level, our results suggest that the recent model by Duranton is a powerful description of the urban growth process. Still there are some aspects that are not captured by that model, which are at the core of other theories of urban growth.

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Bibliographic Info

Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 3180.

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Length: 27 pages
Date of creation: Nov 2007
Date of revision:
Publication status: published in: Journal of Urban Economics, 2008, 64 (2), 326-339
Handle: RePEc:iza:izadps:dp3180

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Keywords: structural change; city size distribution; churning; industry turnover; urban growth; Zipf’s law;

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References

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  1. J. Vernon Henderson & Ari Kuncoro & Matthew Turner, 1992. "Industrial Development in Cities," NBER Working Papers 4178, National Bureau of Economic Research, Inc.
  2. Jonathan Eaton & Zvi Eckstein, 1994. "Cities and Growth: Theory and Evidence from France and Japan," NBER Working Papers 4612, National Bureau of Economic Research, Inc.
  3. Glaeser, E.L. & Scheinkman, J.A., 1993. "Economic Growth in a Cross-Section of Cities," Harvard Institute of Economic Research Working Papers, Harvard - Institute of Economic Research 1645, Harvard - Institute of Economic Research.
  4. 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.
  5. Grossman, Gene M & Helpman, Elhanan, 1991. "Quality Ladders in the Theory of Growth," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 58(1), pages 43-61, January.
  6. Gilles Duranton & Diego Puga, 2001. "From sectoral to functional urban specialisation," LSE Research Online Documents on Economics, London School of Economics and Political Science, LSE Library 20101, London School of Economics and Political Science, LSE Library.
  7. Steven J. Davis & John Haltiwanger, 1998. "Measuring Gross Worker and Job Flows," NBER Chapters, National Bureau of Economic Research, Inc, in: Labor Statistics Measurement Issues, pages 77-122 National Bureau of Economic Research, Inc.
  8. Pierre-Philippe Combes & Thierry Magnac & Jean-Marc Robin, 2004. "The dynamics of local employment in France," Working Papers, Institut National de la Recherche Agronomique, France 155391, Institut National de la Recherche Agronomique, France.
  9. Esteban Rossi-Hansberg & Mark L. J. Wright, 2006. "Urban structure and growth," Staff Report, Federal Reserve Bank of Minneapolis 381, Federal Reserve Bank of Minneapolis.
  10. 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.
  11. Glaeser, Edward L & Hedi D. Kallal & Jose A. Scheinkman & Andrei Shleifer, 1992. "Growth in Cities," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 100(6), pages 1126-52, December.
    • Glaeser, Edward Ludwig & Kallal, Hedi D. & Scheinkman, Jose A. & Shleifer, Andrei, 1992. "Growth in Cities," Scholarly Articles 3451309, Harvard University Department of Economics.
    • Edward L. Glaeser & Hedi D. Kallal & Jose A. Scheinkman & Andrei Shleifer, 1991. "Growth in Cities," NBER Working Papers 3787, National Bureau of Economic Research, Inc.
  12. Simon, Curtis J., 1998. "Human Capital and Metropolitan Employment Growth," Journal of Urban Economics, Elsevier, vol. 43(2), pages 223-243, March.
  13. Jan Eeckhout, 2004. "Gibrat's Law for (All) Cities," American Economic Review, American Economic Association, American Economic Association, vol. 94(5), pages 1429-1451, December.
  14. 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.
  15. 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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