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A Spatial Production Economy Explains Zipf’s Law for Gross Metropolitan Product

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  • Watanabe, Hiroki

Abstract

This paper provides a theoretical and empirical analysis of the distribution of GDP at city level (henceforth referred to as gross metropolitan product, GMP) with the aim of bridging the gap betwen the literature on agglomeration economies and the city-size distribution. We show that 1) it shares the same characteristics to the city-size counterpart: They are both fat-tailed, and 2) a 1% increase in employment leads to a 1.117% (or 1.180% in theory) increase in GMP. Free mobility of household forces a city to operate at the size where scale economies are present, or else, the city cannot offset the reduced housing consumption and increased congestion due to crowding set off by agglomeration economies, and loses its population and GMP to elsewhere. We establish a production economy model to break down the interplay above and derive the equilibrium GMP distribution, which tests well with the US data on GMP.

Suggested Citation

  • Watanabe, Hiroki, 2015. "A Spatial Production Economy Explains Zipf’s Law for Gross Metropolitan Product," MPRA Paper 72907, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:72907
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    File URL: https://mpra.ub.uni-muenchen.de/72907/1/gmp.pdf
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    References listed on IDEAS

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    More about this item

    Keywords

    Zipf’s Law; Gibrat’s Law; GDP by City; Production Economy;

    JEL classification:

    • D51 - Microeconomics - - General Equilibrium and Disequilibrium - - - Exchange and Production Economies
    • E2 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment
    • R12 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Size and Spatial Distributions of Regional Economic Activity; Interregional Trade (economic geography)

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