Economic Benefits and Drawbacks of Cities and their Growth

This article provides an overview of beneficial sharing mechanisms that stimulate the growth of cities and negative sharing mechanisms and spillovers which retard their growth. The economic benefits and drawbacks of a city location are considered for businesses, employees and consumers. It is suggested that the economic benefits of agglomeration arise not so much from the type of economic goods available in a city location (such as common property or local public goods) but from the enhanced operation of processes of economic exchange made possible by the growth of cities. Two theoretical implications of the growth of cities are considered: (1) the possibility that the growth of a city results in growing inequality of income and wealth within the city and (2) the likelihood that a city will grow beyond its optimal size even though the economic benefits from a city location continue to increase with its size. Despite the latter economic failure, it is argued that the growth of cities to be associated with increased levels of per capita income or well-being. It is suggested that the worldwide growth of cities is positively associated with increasing economic globalization and may be associated with the rising inequality of personal income.