Evidence for localization and urbanization economies in urban scaling

TL;DR

This paper investigates how different economic activities and industries scale with city size, revealing that localized industries show superlinear growth while overall urban productivity remains constant, emphasizing the importance of intra-city organization.

Contribution

It provides empirical evidence distinguishing localization and urbanization economies, highlighting the role of industry-specific organization in urban scaling behaviors.

Findings

High-income knowledge occupations show increasing returns to scale.

Total city incomes exhibit constant returns to scale when considering diverse occupations.

Industrial organization, not population size, largely explains productivity variations.

Abstract

We study the scaling of (i) numbers of workers and aggregate incomes by occupational categories against city size, and (ii) total incomes against numbers of workers in different occupations, across the functional metropolitan areas of Australia and the US. The number of workers and aggregate incomes in specific high income knowledge economy related occupations and industries show increasing returns to scale by city size, showing that localization economies within particular industries account for superlinear effects. However, when total urban area incomes and/or Gross Domestic Products are regressed using a generalised Cobb-Douglas function against the number of workers in different occupations as labour inputs, constant returns to scale in productivity against city size are observed. This implies that the urbanization economies at the whole city level show linear scaling or constant returns to scale. Furthermore, industrial and occupational organisations, not population size, largely explain the observed productivity variable. The results show that some very specific industries and occupations contribute to the observed overall superlinearity. The findings suggest that it is not just size but also that it is the diversity of specific intra-city organization of economic and social activity and physical infrastructure that should be used to understand urban scaling behaviors.