Urban Structure and Growth

54 Pages Posted: 25 Jul 2008 Last revised: 22 Apr 2009

See all articles by Esteban Rossi-Hansberg

Esteban Rossi-Hansberg

Princeton University - Department of Economics; National Bureau of Economic Research (NBER)

Mark L. J. Wright

Federal Reserve Banks - Federal Reserve Bank of Minneapolis

Multiple version iconThere are 2 versions of this paper

Date Written: November 1, 2006

Abstract

Most economic activity occurs in cities. This creates a tension between local increasing returns, implied by the existence of cities, and aggregate constant returns, implied by balanced growth. To address this tension, we develop a general equilibrium theory of economic growth in an urban environment. In our theory, variation in the urban structure through the growth, birth, and death of cities is the margin that eliminates local increasing returns to yield constant returns to scale in the aggregate. We show that, consistent with the data, the theory produces a city size distribution that is well approximated by Zipf's Law, but that also displays the observed systematic under-representation of both very small and very large cities. Using our model, we show that the dispersion of city sizes is consistent with the dispersion of productivity shocks found in the data.

Keywords: Balanced Growth, Economic Growth, Scale Effects, Size Distribution of Cities, Zip's Law, Gibrat's Law

JEL Classification: E0, O4, R0

Suggested Citation

Rossi-Hansberg, Esteban Alejandro and Wright, Mark L.J., Urban Structure and Growth (November 1, 2006). Available at SSRN: https://ssrn.com/abstract=1172042 or http://dx.doi.org/10.2139/ssrn.1172042

Esteban Alejandro Rossi-Hansberg (Contact Author)

Princeton University - Department of Economics ( email )

Princeton, NJ
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Mark L.J. Wright

Federal Reserve Banks - Federal Reserve Bank of Minneapolis ( email )

90 Hennepin Avenue
Minneapolis, MN 55480
United States

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