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The Comparative Advantage of Cities

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  • Donald R. Davis
  • Jonathan I. Dingel

Abstract

What determines the distributions of skills, occupations, and industries across cities? We develop a theory to jointly address these fundamental questions about the spatial organization of economies. Our model incorporates a system of cities, their internal urban structures, and a high-dimensional theory of factor-driven comparative advantage. It predicts that larger cities will be skill-abundant and specialize in skill-intensive activities according to the monotone likelihood ratio property. We test the model using data on 270 US metropolitan areas, 3 to 9 educational categories, 22 occupations, and 21 manufacturing industries. The results provide support for our theory's predictions.

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  • Donald R. Davis & Jonathan I. Dingel, 2014. "The Comparative Advantage of Cities," NBER Working Papers 20602, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:20602
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    JEL classification:

    • F11 - International Economics - - Trade - - - Neoclassical Models of Trade
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • R12 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Size and Spatial Distributions of Regional Economic Activity; Interregional Trade (economic geography)
    • R13 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - General Equilibrium and Welfare Economic Analysis of Regional Economies

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