Separating Urban Agglomeration Economies in Consumption and Production
Posted: 11 Sep 2001
In this paper, we estimate the net agglomeration economies on the consumption side as well as the production side using Japanese city-based data from 1992, when interregional net migration nearly ceased. We show that doubling city size increases the nominal wage by approximately 10% but decreases the real wage by approximately 7-12%. The 10% increase of the nominal wage is attributed to the productivity increase in production activities while the 7-12% decrease of the real wage is a compensation for the net agglomeration economies, which are the benefits from product variety minus the costs of congestion. In other words, city bigness not only enhances the productivity of firms but also brings net agglomeration economies to households. In this way, we separate the net agglomeration economies on the production side from those on the consumption side.
JEL Classification: R50
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