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Industry churning and the evolution of cities: Evidence for Germany

  • Findeisen, Sebastian
  • Südekum, Jens

In this paper we show that the recent model by Gilles Duranton [Duranton, G., 2007. Urban evolutions: The fast, the slow, and the still. American Economic Review 97, 197-221] 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 in urban economics about the determinants of local industry turnover so far. We present an empirical analysis of the excess churning index for West German cities, which describes the strength of intra-city industry reallocations over time. We find that urban growth and industry turnover are not notably correlated: Some, but not all fast-growing cities have notably changed. Secondly, human capital is positively related to growth and turnover, but only among successful cities. Industrial change within unsuccessful cities is driven by the disappearance of old-fashioned and declining sectors 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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Article provided by Elsevier in its journal Journal of Urban Economics.

Volume (Year): 64 (2008)
Issue (Month): 2 (September)
Pages: 326-339

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Handle: RePEc:eee:juecon:v:64:y:2008:i:2:p:326-339
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  1. Gilles Duranton & Diego Puga, 2001. "From sectoral to functional urban specialisation," Working Papers dpuga-01-01, University of Toronto, Department of Economics.
  2. J. Vernon Henderson & Ari Kuncoro & Matthew Turner, 1992. "Industrial Development in Cities," NBER Working Papers 4178, National Bureau of Economic Research, Inc.
  3. Mark Wright & Esteban Rossi-Hansberg, 2004. "Urban Structure and Growth," 2004 Meeting Papers 33, Society for Economic Dynamics.
  4. Glaeser, Edward Ludwig & Kallal, Hedi D. & Scheinkman, Jose A. & Shleifer, Andrei, 1992. "Growth in Cities," Scholarly Articles 3451309, Harvard University Department of Economics.
  5. Xavier Gabaix, 1999. "Zipf'S Law For Cities: An Explanation," The Quarterly Journal of Economics, MIT Press, vol. 114(3), pages 739-767, August.
  6. Eaton, Jonathan & Eckstein, Zvi, 1997. "Cities and growth: Theory and evidence from France and Japan," Regional Science and Urban Economics, Elsevier, vol. 27(4-5), pages 443-474, August.
  7. Grossman, Gene M & Helpman, Elhanan, 1991. "Quality Ladders in the Theory of Growth," Review of Economic Studies, Wiley Blackwell, vol. 58(1), pages 43-61, January.
  8. Duncan Black & Vernon Henderson, 1999. "A Theory of Urban Growth," Journal of Political Economy, University of Chicago Press, vol. 107(2), pages 252-284, April.
  9. Xavier Gabaix & Yannis M. Ioannides, 2003. "The Evolution of City Size Distributions," Discussion Papers Series, Department of Economics, Tufts University 0310, Department of Economics, Tufts University.
  10. Gilles Duranton, 2007. "Urban Evolutions: The Fast, the Slow, and the Still," American Economic Review, American Economic Association, vol. 97(1), pages 197-221, March.
  11. Combes, Pierre-Philippe & Magnac, Thierry & Robin, Jean-Marc, 2004. "The dynamics of local employment in France," Journal of Urban Economics, Elsevier, vol. 56(2), pages 217-243, September.
  12. Steven J. Davis & John Haltiwanger, 1995. "Measuring Gross Worker and Job Flows," NBER Working Papers 5133, National Bureau of Economic Research, Inc.
  13. Edward L. Glaeser & Jose A. Scheinkman & Andrei Shleifer, 1995. "Economic Growth in a Cross-Section of Cities," NBER Working Papers 5013, National Bureau of Economic Research, Inc.
  14. Jan Eeckhout, 2004. "Gibrat's Law for (All) Cities," American Economic Review, American Economic Association, vol. 94(5), pages 1429-1451, December.
  15. Simon, Curtis J., 1998. "Human Capital and Metropolitan Employment Growth," Journal of Urban Economics, Elsevier, vol. 43(2), pages 223-243, March.
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