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Title: Agglomeration and Productivity: New Estimates and Macroeconomic Implications

Citation Type: Working Paper

Publication Year: 2009

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Abstract: We construct a dynamic general equilibrium model of cities with aggregatebalanced growth and use it to estimate the effects of local agglomeration on percapita consumption growth. Agglomeration affects growth through the densityof economic activity: higher production per unit of land raises local produc-tivity. Firms take productivity as given and produce with constant returns indeveloped land, physical capital and labor. Land and capital may be accumu-lated. If the relative price of new developed land is rising, as it is empirically,density is rising and contributes to growth. Our model predicts an empiricalrelationship between wages, housing rents, and labor inputs. We use this toestimate the net effect of agglomeration on local productivity with a panel ofUS cities. We estimate that doubling output in a location raises productiv-ity of firms in that location by 6.9%. Our preferred estimate indicates thatagglomeration increases the growth rate of per capita consumption by 10.7%.

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Authors: Fisher, Jonas DM; Whited, Toni M.; Davis, Morris A.

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Institution: University of Wisconsin

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Data Collections: IPUMS CPS

Topics: Labor Force and Occupational Structure

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