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Do smart cities grow faster?

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  • de la Garza, Adrián G.

Abstract

Previous studies have found a strong positive correlation between human capital, measured as the share of the adult population with a college degree, and population growth in metropolitan statistical areas (MSA) in the U.S. In this paper, I corroborate that the human capital-growth connection is indeed statistically significant, although much weaker than previously thought. The evidence suggests that the main reason behind this bias lies on endogeneity issues that have not been thoroughly addressed in the literature. In particular, omitting lagged MSA growth in regressions of current MSA growth on human capital overestimates the impact of skills by 100 per cent. Given that past growth has been shown to be one of the main drivers of current MSA growth (Glaeser 1994a), omitting the former variable in growth-education regressions would bias our human capital estimates upwards. Upon further examination, however, I show that MSA-specific fixed effects explain away the alleged impact of past on current growth. This suggests that the individual characteristics of the city that made it grew in the first place, and not lagged MSA growth per se, are what drives future MSA growth. Yet, even after accounting for these MSA-specific fixed effects, the impact of human capital on MSA growth does not disappear: my estimates suggest that a decadal increase of 10 per cent in the share of the adult population with a college degree translates into a rise of between 3 and up to 5 per cent in the MSA population growth rate during the same period. Finally, instrumental variable regressions strongly support the direction from skills to growth, abating potential reverse causality concerns.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 10881.

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Date of creation: Sep 2008
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Handle: RePEc:pra:mprapa:10881

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Keywords: human capital; urban growth; skills; education; population changes;

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  1. Enrico Moretti, 2002. "Estimating the Social Return to Higher Education: Evidence From Longitudinal and Repeated Cross-Sectional Data," NBER Working Papers 9108, National Bureau of Economic Research, Inc.
  2. Paul Krugman, 1990. "Increasing Returns and Economic Geography," NBER Working Papers 3275, National Bureau of Economic Research, Inc.
  3. Edward L. Glaeser, Jed Kolko, and Albert Saiz, 2001. "Consumer city," Journal of Economic Geography, Oxford University Press, vol. 1(1), pages 27-50, January.
  4. Edward L. Glaeser & Albert Saiz, 2003. "The rise of the skilled city," Working Papers 04-2, Federal Reserve Bank of Philadelphia.
  5. Simon, Curtis J., 1998. "Human Capital and Metropolitan Employment Growth," Journal of Urban Economics, Elsevier, vol. 43(2), pages 223-243, March.
  6. Jesse M. Shapiro, 2005. "Smart Cities: Quality of Life, Productivity, and the Growth Effects of Human Capital," NBER Working Papers 11615, National Bureau of Economic Research, Inc.
  7. Glaeser, Edward L. & Scheinkman, JoseA. & Shleifer, Andrei, 1995. "Economic growth in a cross-section of cities," Journal of Monetary Economics, Elsevier, vol. 36(1), pages 117-143, August.
  8. Glaeser, Edward L., 1994. "Why does schooling generate economic growth?," Economics Letters, Elsevier, vol. 44(3), pages 333-337.
  9. repec:fth:stanho:e-95-4 is not listed on IDEAS
  10. Lucas, Robert Jr., 1988. "On the mechanics of economic development," Journal of Monetary Economics, Elsevier, vol. 22(1), pages 3-42, July.
  11. R. Jason Faberman, 2005. "What’s In a City?: Understanding the Micro-Level Employer Dynamics Underlying Urban Growth," Working Papers 386, U.S. Bureau of Labor Statistics.
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