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Nursery Cities: Urban diversity, process innovation, and the life-cycle of products

  • Gilles Duranton
  • Diego Puga

This paper develops microfoundations for the role that diversified cities play in fostering innovation. 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 where production costs are lower. We find strong evidence of this pattern in establishment relocations across French employment areas 1993-1996.

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File URL: http://www.economics.utoronto.ca/public/workingPapers/nursery.pdf
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Paper provided by University of Toronto, Department of Economics in its series Working Papers with number dpuga-00-01.

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Length: 28 pages
Date of creation: 11 Jan 2000
Date of revision:
Handle: RePEc:tor:tecipa:dpuga-00-01
Contact details of provider: Postal: 150 St. George Street, Toronto, Ontario
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