A new study has examined the economic impact of when people condense themselves into cities rather than spread out in more rural living conditions. The economic benefit derived from populations forming into hubs is not insignificant.
Cities exist because of the productivity gains that arise from clustering production and workers, a process called agglomeration. How important is agglomeration for aggregate growth? This paper constructs a dynamic stochastic general equilibrium model of cities and uses it to estimate the e?ect of local agglomeration on aggregate growth. We combine aggregate time-series and city-level panel data to estimate the model’s parameters via generalized method of moments. The estimates imply a statistically and economically signi?cant impact of local agglomeration on the growth rate of per capita consumption, raising it by about 10%.