Gilles Duranton on the Growth of Cities

Gilles Duranton is the Dean's Chair in Real Estate Professor at The Wharton School of the University of Pennsylvania and Penn IUR Faculty Fellow since 2012. 

Gilles Duranton's extensive body of research has significantly advanced our understanding of the growth and decline of cities. His current work focuses on land use and urban growth in emerging cities, the measurement of urban transportation and congestion, land development, and the geography of innovation and technology. His research enables evaluation of the effects of infrastructure and place-based policies. By addressing the complexities of defining cities and measuring urban costs, Duranton's contributions offer valuable insights for policymakers and urban planners aiming to harness the benefits of urban agglomeration while mitigating its costs.

In his work on urban agglomeration, he argues that urban agglomeration economies are the ultimate explanation for the existence of large cities. Cities allow for better matches between employees and employers and between upstream and downstream firms. Beyond this, agglomeration offers opportunities for knowledge spillovers via social interactions. Knowledge sharing continues to be central to urban growth in today’s knowledge economy. 

In his foundational review “The growth of cities,” Duranton, together with co-author Diego Puga, argue that there are four main drivers to city growth:

1. Transportation and housing supply; 
2. Amenities;
3. Agglomeration effects related to human capital and entrepreneurship; and
4. Technology and shocks to specific cities or industries. 

Duranton has also developed new approaches to delineate cities and measure spatial dynamics in order to accurately assess economic impacts in urban areas. This work is crucial for creating consistent and comparable metrics in urban studies.

From The Growth of Cities

Although cities tend to grow over time, they do not grow uniformly at the same rate. These features naturally lead to asking why cities keep growing even after countries are already highly urbanized, and why some cities grow faster than others.

Being able to answer these questions is important for at least three reasons. The first is that the population growth of cities is economically important in itself. Extremely large investments in building new housing and infrastructure must be made to accommodate the demographic growth of cities. For instance, American households spend about a third of their income on housing, according to the Consumer Expenditure Survey. For their part, various levels of the US government spend more than 200 billion dollar every year to maintain and expand the road infrastructure. Given that most of these investments are extremely durable, it is important to plan them properly and, for this, we need to understand why and how cities grow.

Second, urban economics has proposed a number of theories to explain the population size of cities. …[L]iterature has focused on the importance of location within the city and its impact on commuting costs as a key determinant of land use and housing development in cities. In turn, the ease of commuting, the availability of housing, and earnings determine the population size of cities.

…[U]rban economists have also paid great attention to the role of amenities in attracting people to cities. Recognizing that earnings and productivity are themselves systematically related to the population size of cities, much work has been devoted to modelling the productive advantages of cities or agglomeration economies explicitly …The tradeoff between agglomeration economies and urban costs, at the core of systems of cities models…is widely accepted as the key explanation behind the existence of cities and provides some important implications for their population growth. Finally, the existence of some regularities in the size distribution of cities and in the patterns of urban growth has motivated alternative approaches which emphasize the importance of random shocks in urban growth.

These theories offer useful guidance to conduct empirical work on urban growth by providing us with specifications and by highlighting a number of identification pitfalls. Conversely, an evaluation of the key drivers of urban growth is also an evaluation of the predictions of the core approaches to the economics of cities.

A third reason to study urban growth is that cities offer an interesting window through which to study the process of economic growth. How cities grow and why may hold important lessons for how and why economies grow. Existing theories of economic growth emphasize the importance of direct interactions…

The monocentric city model, by focusing on the tradeoff between commuting costs and house prices within a single city, highlights the costs of bigger cities. To study meaningfully multiple cities within an urban system, we need to consider also the productive benefits of bigger cities…

[I]f new potential sites for cities are available, then agglomeration economies are essential to understand why cities exist at all.

…[C]lose links between theory and empirics have turned out to be very useful. They allow going beyond the estimation of the elasticity of city growth with respect to a specific driver to examine other implications of these theories. For instance, in monocentric models of cities lower transportation costs imply not only population growth but also greater suburbanisation, increased land consumption, etc. Many of these extra predictions have been examined in the literature and receive strong empirical support. 

This said, the success of this literature is only partial and much remains to be done. …[M]any results depend crucially on workers being homogenous and perfectly mobile. Dynamic urban models with heterogeneous agents and explicit mobility costs should be a key priority for theory. This will provide new insights into the evolution of cities and help us consider adjustment processes explicitly. In turn, this will hopefully lead to new empirical approaches that push the study of urban dynamics beyond crosscity growth regressions and avoid the ambiguities that mar the interpretation of many results in the literature.

Furthermore, some potential drivers of the growth of cities are yet to be explored. The biggest gap is arguably studying the effects of municipal and city governments, local policies and public finance. In addition, many empirical results should be strengthened and alternative empirical strategies developed to confirm them…[E]xploring drivers of urban growth in isolation is not satisfactory. 

… For instance, the links between human capital and entrepreneurship need to be clarified. Also, both infrastructure and amenities drive city growth but infrastructure-rich places are often amenity-poor and vice versa.

Engines of city growth might substitute for one another or instead, perhaps, complement each other. Understanding the relationships between drivers of urban growth ..could also be highly relevant to design urban growth strategies.