Can Agglomeration Economies Explain Why People are Leaving Large Cities?

Abstract

In this journal, Vining and Kontuly recently posed the question “Is out-migration from large cities consistent with agglomeration economy advantages that these cities are commonly said to enjoy”. Previous authors who have responded to this query have supplied an indifference curve analysis that examines the trade-off individuals face between income and urban size (environmental goods). This paper instead provides a general equilibrium model that explicitly incorporates urban agglomeration economies to examine the conditions under which out-migration and those economies may simultaneously exist. Under the assumption that the elasticity of substitution between the outputs of large and small cities is unity, four cases can be distinguished. Our conclusion is that labor will unambiguously migrate from large cities with an increase in agglomeration economies only if large city goods are income-inelastic and large cities are relatively capital-intensive. The more reasonable hypothesis, that out-migration is a result of shrinking productivity advantages of large cities, can also be investigated by means of this general equilibrium framework.