The goal of this project is to improve our understanding of cities and how their characteristics can influence welfare and economic growth over the long-term. The project focuses on two areas where new research methods and results are needed in order to inform ongoing policy debates. One strand of research focuses on improving our understanding of local networks of buyer-supplier relationships. Specifically, the PI studies how local buyer-supplier networks can improve firm performance, and the role that they play in spreading shocks across local economies. Improving our understanding of these issues can help us anticipate the impact that shocks to important local firms can have on the larger economy. The second research strand studies the tradeoff between encouraging industrial growth in cities and protecting the local environment, which has implications for the health of city residents, city growth, and population sorting. To make progress on these important issues, this project combines data tracking the economic development of cities over the long-run (across a period of 150 years) with new theoretical and econometric tools. The primary data set describes the evolution of city employment, by industry, for all industries in 31 cities. Additional information covers aspects of city health, education, marriage and fertility patterns, firm bankruptcies, etc.
More analytically, the first strand of research in this project draws on these new data in order to understand (1) how inter-firm networks influence the long-term growth of cities and (2) the role that these networks play in the propagation of shocks through local economies. This involves adapting standard economic theories to the empirical setting, deriving theoretically-grounded estimating equations, and applying them to the data. This research stream can contribute to our understanding of cities and can help improve local industrial policy decisions, including the $80 billion in tax incentives that local and state governments in the U.S. use each year to attract industries.
The second strand of research in this project tries to estimate the impact of local environmental degradation on local economic growth over the long run. Standard urban economic theories predict that local pollution will slow down economic growth by (1) making it more difficult for firms to attract and retain workers, and (2) by lowering the productivity and quality-of-life of workers by affecting their health. In this strand of work, the PI incorporates local pollution into a standard urban economic model. The model is then used to develop a theoretically-grounded estimation approach for measuring the impact of local pollution on local employment growth over the long-run. The PI also studies the long-term health effects of local pollution. The results can help improve our understanding of the economic costs of local industrial pollution and the economic impact of local environmental regulation.