Macroeconomic Implications of Agglomeration
AbstractWe 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. We 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 e®ect of agglomeration on local wages. The impact of agglomeration on the level of wages is estimated to be 2 percent. Combined with our 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 Society for Economic Dynamics in its series 2010 Meeting Papers with number 1330.
Date of creation: 2010
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Postal: Society for Economic Dynamics Christian Zimmermann Economic Research Federal Reserve Bank of St. Louis PO Box 442 St. Louis MO 63166-0442 USA
Web page: http://www.EconomicDynamics.org/society.htm
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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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