DP2971 From Sectoral to Functional Urban Specialization
| Author(s): | Gilles Duranton, Diego Puga |
| Publication Date: | September 2001 |
| Keyword(s): | business services, cities, functional specialization, headquarters |
| JEL(s): | L23, R12, R30 |
| Programme Areas: | Industrial Organization, International Trade and Regional Economics |
| Link to this Page: | cepr.org/active/publications/discussion_papers/dp.php?dpno=2971 |
We document and then develop a model explaining and relating changes in firms? organization and in urban structure. Sharing of business services by headquarters and of sector-specific intermediates by production plants within a city reduces costs, while congestion increases with city size. A fall in the costs of remote management leads to a shift in urban structure, from a configuration where cities specialize by sector and host integrated headquarters and production plants, to a configuration where cities specialize by function, with headquarters from different sectors and business services clustered in a few large cities and production plants from each sector clustered in smaller separate cities.