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From Sectoral to Functional Urban Specialization

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  • Gilles Duranton
  • Diego Puga

Abstract

Striking evidence is presented of a previously unremarked transformation of urban structure from mainly sectoral to mainly functional specialization. We offer an explanation showing that this transformation is inextricably interrelated with changes in firms' organization. A greater variety of business services for headquarters and of sector-specific intermediates for production plants within a city reduces costs, while congestion increases with city size. A fall in the costs of remote management leads to a transformation of the equilibrium urban and industrial structure. Cities shift from specializing by sector -- with integrated headquarters and plants -- to specializing mainly by function -- with headquarters and business services clustered in larger cities, and plants clustered in smaller cities.

Suggested Citation

  • Gilles Duranton & Diego Puga, 2002. "From Sectoral to Functional Urban Specialization," NBER Working Papers 9112, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:9112
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    JEL classification:

    • R30 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - General
    • L23 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Organization of Production

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