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Macroeconomic Implications of Agglomeration

  • Toni Whited

    (University of Rochester)

  • Jonas Fisher

    (Federal Reserve Bank of Chicago)

  • Morris Davis

    (University of Wisconsin-Madison, School)

Cities exist because of the productivity gains arising from clustering production and workers, a process called agglomeration. How important is agglomeration for aggregate growth? This paper constructs a dynamic stochastic general equilibrium model of cities and uses it to estimate the effect of local agglomeration on aggregate growth. We combine aggregate time series and city-level panel data to estimate our model’s parameters by the Generalized Method of Moments. The estimates imply that local agglomeration has an economically and statistically significant impact on the growth rate of per capita consumption, raising it by about 10 percent.

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Paper provided by Society for Economic Dynamics in its series 2013 Meeting Papers with number 893.

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Date of creation: 2013
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Handle: RePEc:red:sed013:893
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