From Sectoral to Functional Urban Specialization

35 Pages Posted: 16 Aug 2002 Last revised: 27 May 2022

See all articles by Gilles Duranton

Gilles Duranton

London School of Economics & Political Science (LSE) - Department of Geography and Environment; Centre for Economic Policy Research (CEPR)

Diego Puga

IMDEA Social Sciences; University of Toronto - Department of Economics; Centre for Economic Policy Research (CEPR); National Bureau of Economic Research (NBER)

Date Written: August 2002

Abstract

Striking evidence is presented of a previously unremarked transformation of urban structure from mainly sectoral to mainly functional specialization. We offer an explanation showing that this transformation is inextricably interrelated with changes in firms' organization. A greater variety of business services for headquarters and of sector-specific intermediates for production plants within a city reduces costs, while congestion increases with city size. A fall in the costs of remote management leads to a transformation of the equilibrium urban and industrial structure. Cities shift from specializing by sector -- with integrated headquarters and plants -- to specializing mainly by function -- with headquarters and business services clustered in larger cities, and plants clustered in smaller cities.

Suggested Citation

Duranton, Gilles and Puga, Diego, From Sectoral to Functional Urban Specialization (August 2002). NBER Working Paper No. w9112, Available at SSRN: https://ssrn.com/abstract=324054

Gilles Duranton

London School of Economics & Political Science (LSE) - Department of Geography and Environment ( email )

Houghton Street
London, WC2A 2AE
United Kingdom
+44 20 7955 7604 (Phone)
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Centre for Economic Policy Research (CEPR)

London
United Kingdom

Diego Puga (Contact Author)

IMDEA Social Sciences ( email )

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Madrid, 28001
Spain

University of Toronto - Department of Economics ( email )

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HOME PAGE: http://dpuga.economics.utoronto.ca/

Centre for Economic Policy Research (CEPR)

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United Kingdom

National Bureau of Economic Research (NBER)

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