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Macroeconomic Implications of Agglomeration

39 Pages Posted: 10 Jan 2010 Last revised: 12 Nov 2011

Morris A. Davis

Rutgers Business School

Jonas D. M. Fisher

Federal Reserve Bank of Chicago - Economic Research Department

Toni M. Whited

University of Michigan, Stephen M. Ross School of Business; National Bureau of Economic Research

Multiple version iconThere are 2 versions of this paper

Date Written: December 30, 2009

Abstract

Cities exist because of the productivity gains arising 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 localagglomeration on aggregate growth. We combine aggregate data and city-level panel data to estimate our model's parameters by the Generalized Method of Moments. The estimates imply that local agglomeration has an economically and statistically significant impact on the growth rate of per capita consumption, raising it by about 10 percent. Lending credibility to this finding, we demonstrate that our model reproduces important features of the cross-section of cities.

Keywords: Balanced Growth, Economic Growth, Productivity, Externalities, Increasing Returns, Agglomeration, Density

JEL Classification: E0, O4, R0

Suggested Citation

Davis, Morris A. and Fisher, Jonas D. M. and Whited, Toni M., Macroeconomic Implications of Agglomeration (December 30, 2009). Simon School Working Paper No. FR 10-12. Available at SSRN: https://ssrn.com/abstract=1533821 or http://dx.doi.org/10.2139/ssrn.1533821

Morris A. Davis

Rutgers Business School ( email )

Rutgers Business School
One Washington Park #1092
Newark, NJ 07102
United States

Jonas D. M. Fisher

Federal Reserve Bank of Chicago - Economic Research Department ( email )

230 South LaSalle Street
Chicago, IL 60604-1413
United States

Toni M. Whited (Contact Author)

University of Michigan, Stephen M. Ross School of Business ( email )

701 Tappan Street
Ann Arbor, MI MI 48109
United States

National Bureau of Economic Research ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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