DP14215 Urban growth and its aggregate implications

Author(s): Gilles Duranton, Diego Puga
Publication Date: December 2019
Keyword(s): agglomeration economies, city size distributions, planning regulations, Urban costs, urban growth
JEL(s): C52, D24, R12
Programme Areas: International Trade and Regional Economics, Macroeconomics and Growth
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=14215

We develop an urban growth model where human capital spillovers foster entrepreneurship and learning in heterogenous cities. Incumbent residents limit city expansion through planning regulations so that commuting and housing costs do not outweigh productivity gains. The model builds on strong microfoundations, matches key regularities at the city and economy-wide levels, and generates novel predictions for which we provide evidence. It can be quantified relying on few parameters, provides a basis to estimate the main ones, and remains transparent regarding its mechanisms. We examine various counterfactuals to assess quantitatively the effect of cities on economic growth and aggregate income.