Firm Dynamics in an Urban Economy

30 Pages Posted: 29 Oct 2015

See all articles by Jeffrey Brinkman

Jeffrey Brinkman

Federal Reserve Banks - Federal Reserve Bank of Philadelphia

Daniele Coen‐Pirani

University of Pittsburgh

Holger Sieg

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

Date Written: November 2015

Abstract

We develop a new dynamic general equilibrium model to explain firm entry, exit, and relocation decisions in an urban economy with multiple locations and agglomeration externalities. We characterize the stationary distribution of firms that arises in equilibrium. We estimate the parameters of the model using a method of moments estimator. Using unique panel data collected by Dun and Bradstreet, we find that agglomeration externalities increase the productivity of firms by up to 8%. Economic policies that subsidize firm relocations to the central business district increase agglomeration externalities in that area. They also increase economic welfare in the economy.

Suggested Citation

Brinkman, Jeffrey and Coen‐Pirani, Daniele and Sieg, Holger, Firm Dynamics in an Urban Economy (November 2015). International Economic Review, Vol. 56, Issue 4, pp. 1135-1164, 2015. Available at SSRN: https://ssrn.com/abstract=2682783 or http://dx.doi.org/10.1111/iere.12133

Jeffrey Brinkman (Contact Author)

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

Ten Independence Mall
Philadelphia, PA 19106-1574
United States

Daniele Coen‐Pirani

University of Pittsburgh

135 N Bellefield Ave
Pittsburgh, PA 15260
United States

Holger Sieg

University of Pennsylvania - Department of Economics ( email )

Ronald O. Perelman Center for Political Science
133 South 36th Street
Philadelphia, PA 19104-6297
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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