Urban Growth and its Aggregate Implications
We develop an urban growth model where human capital spillovers foster entrepreneurship and learning in heterogenous cities. Incumbent residents limit city expansion through planning regulations so that commuting and housing costs do not outweigh productivity gains. The model builds on strong microfoundations, matches key regularities at the city and economy-wide levels, and generates novel predictions for which we provide evidence. It can be quantified relying on few parameters, provides a basis to estimate the main ones, and remains transparent regarding its mechanisms. We examine various counterfactuals to assess quantitatively the effect of cities on economic growth and aggregate income.
Puga gratefully acknowledges funding from the European Research Council under the European Union's Horizon 2020 Programme (ERC Advanced Grant agreement 695107 -- DYNURBAN) and from Spain's Ministry of Science, Innovation and Universities (grants ECO2013-41755-P, ECO2016-80411-P and PRX19-00578), as well as the support and hospitality of the Wharton School's Department of Real Estate during his visit as Judith C. and William G. Bollinger Visiting Professor. We are grateful to Xinzhu Chen, Yan Hu, Junhui Yang, and Jungsoo Yoo for research assistance, to Jorge De la Roca for advice on the NLSY79 and CPS data, to Matt Kahn and Giacomo Ponzetto for very helpful discussions, and to Morris Davis, Vernon Henderson, Diego Restuccia and seminar and conference participants for useful comments. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research.