Urban growth and its aggregate implications

Abstract:
We develop an urban growth model where human capital promotes entrepreneurship and raises city productivity. Land-use regulation balances commuting and housing costs against productivity gains to benefit local residents. Systematic determinants and productivity shocks drive city growth, generating realistic city-size distributions. Cities experience parallel growth in expectation, while subject to ups and downs around this common trend. Growth of existing cities and net city entry accommodate aggregate population growth. Matching key empirical moments at the city and economy-wide levels, we explore the contribution of cities to aggregate growth and income levels and the economy-wide consequences of land use regulations.