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Nursery cities: urban diversity, process innovation and the life-cycle of products

  • Gilles Duranton
  • Diego Puga

A simple model of process innovation is proposed, where firms learn about their ideal production process by making prototypes. We build around this a dynamic general equilibrium model, and derive conditions under which diversified and specialised cities coexist. New products are developed in diversified cities, trying processes borrowed from different activities. On finding their ideal process, firms switch to mass-production and relocate to specialised cities with lower costs. When in equilibrium, this configuration welfare-dominates those with only diversified or only specialised cities. We find strong evidence of this relocation pattern in establishment relocations across French employment areas 1993û1996.

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File URL: http://eprints.lse.ac.uk/20204/
File Function: Open access version.
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Paper provided by London School of Economics and Political Science, LSE Library in its series LSE Research Online Documents on Economics with number 20204.

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Length: 37 pages
Date of creation: Feb 2000
Date of revision:
Handle: RePEc:ehl:lserod:20204
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Web page: http://www.lse.ac.uk/
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