Macroeconomic Implications of Agglomeration
Morris A. Davis, Jonas D. M. Fisher, Toni M. Whited
Econometrica · 2014 · Volume 82 · Issue 2
Abstract
Cities exist because of the productivity gains that arise 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 the model's parameters via generalized method of moments. The estimates imply a statistically and economically significant impact of local agglomeration on the growth rate of per capita consumption, raising it by about 10%.
Keywords
Economic growth, productivity, increasing returns, agglomeration, density
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