Cities and Growth: Theory and Evidence from France and Japan

The relative distribution of the populations of the top 40 urban areas of France and Japan remained very constant during these countries' periods of industrialization and urbanization. Moreover, projection of their future distributions based on past growth indicates that their size-distributions in steady state will not differ essentially from what they have been historically. Urbanization consequently appears to have taken the form of the parallel growth of cities, rather than of convergence to an optimal city size or of the divergent growth of the largest cities. We develop a model of urbanization and growth based on the accumulation of human capital consistent with these observations. Our model predicts that larger cities will have higher levels of human capital, higher rents, and higher wages per worker, even though workers are homogeneous and free to migrate between cities. Cities grow at a common growth rate, with relative city size depending upon the environment that they provide for learning.