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A Statistical Test of City Growth: Location, Increasing Returns and Random Growth

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  • González-Val, Rafael
  • Olmo, Jose

Abstract

This article analyzes the main existing theories on income and population city growth: the existence of increasing returns to scale, the importance of locational fundamentals, and random growth. To do this we develop a nonlinearity test that is implemented to a dataset on urban, climatological and macroeconomic variables on 1,175 U.S. cities. The conclusions of our analysis are that there are increasing returns to scale on city income growth; nevertheless, the most important variables to explain income growth are locational fundamentals. Both sets of variables need to be jointly considered to avoid inconsistent model parameter estimates. We also observe increasing returns to scale on population growth; larger cities grow at a faster pace than smaller cities. These cities are not, however, within the group of wealthiest cities implying the existence of a threshold on population beyond which per-capita income growth stagnates or even deteriorates.

Suggested Citation

  • González-Val, Rafael & Olmo, Jose, 2010. "A Statistical Test of City Growth: Location, Increasing Returns and Random Growth," MPRA Paper 27139, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:27139
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    File URL: https://mpra.ub.uni-muenchen.de/56732/1/MPRA_paper_56732.pdf
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    References listed on IDEAS

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    Cited by:

    1. Chen, Zhihong & Fu, Shihe & Zhang, Dayong, 2010. "Searching for the parallel growth of cities," MPRA Paper 21528, University Library of Munich, Germany.
    2. repec:wyi:journl:002175 is not listed on IDEAS

    More about this item

    Keywords

    threshold nonlinearity test; locational fundamentals; multiple equilibria; random growth;

    JEL classification:

    • C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Estimation: General
    • O10 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - General
    • R00 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General - - - General
    • C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General
    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • R11 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Regional Economic Activity: Growth, Development, Environmental Issues, and Changes

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