Why Does a City Grow? Specialisation, Human Capital or Institutions?

Abstract

Why are there persistent differences in income between metropolitan areas? The answer to this question has evaded much of the scholarship on the topic. Some of the frameworks that drive empirical research in this field are based on ad hoc combinations of explanatory factors, ranging from natural climate, to business climate, to land and labour costs. Theoretical approaches emphasise economic specialisation: some activities have higher rates of growth than others and this translates into divergence in interurban growth and income. Yet specialisation itself needs to be explained. International economics explains different growth rates and income levels among countries by emphasising specialisation, human capital and institutions. This framework can be adapted to the analysis of metropolitan growth. The thorniest aspect of doing so is to consider recursive relationships among the three, as well as decisive events that might introduce irreversible path-dependent outcomes that differentiate cities.