NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

The Comparative Advantage of Cities

Donald R. Davis, Jonathan I. Dingel

NBER Working Paper No. 20602
Issued in October 2014
NBER Program(s):   ITI   LS

What determines the distributions of skills, occupations, and industries across cities? We develop a theory to jointly address these fundamental questions about the spatial organization of economies. Our model incorporates a system of cities, their internal urban structures, and a high-dimensional theory of factor-driven comparative advantage. It predicts that larger cities will be skill-abundant and specialize in skill-intensive activities according to the monotone likelihood ratio property. We test the model using data on 270 US metropolitan areas, 3 to 9 educational categories, 22 occupations, and 21 manufacturing industries. The results provide support for our theory's predictions.

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Document Object Identifier (DOI): 10.3386/w20602

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