Do smart cities grow faster?

de la Garza, Adrián G. (2008): Do smart cities grow faster? Forthcoming in: Ensayos Revista de Economía , Vol. 1, No. 2 (November 2008)

Abstract

Previous studies have found a strong positive correlation between human capital, measured as the share of the adult population with a college degree, and population growth in metropolitan statistical areas (MSA) in the U.S. In this paper, I corroborate that the human capital-growth connection is indeed statistically significant, although much weaker than previously thought. The evidence suggests that the main reason behind this bias lies on endogeneity issues that have not been thoroughly addressed in the literature. In particular, omitting lagged MSA growth in regressions of current MSA growth on human capital overestimates the impact of skills by 100 per cent. Given that past growth has been shown to be one of the main drivers of current MSA growth (Glaeser 1994a), omitting the former variable in growth-education regressions would bias our human capital estimates upwards. Upon further examination, however, I show that MSA-specific fixed effects explain away the alleged impact of past on current growth. This suggests that the individual characteristics of the city that made it grew in the first place, and not lagged MSA growth per se, are what drives future MSA growth. Yet, even after accounting for these MSA-specific fixed effects, the impact of human capital on MSA growth does not disappear: my estimates suggest that a decadal increase of 10 per cent in the share of the adult population with a college degree translates into a rise of between 3 and up to 5 per cent in the MSA population growth rate during the same period. Finally, instrumental variable regressions strongly support the direction from skills to growth, abating potential reverse causality concerns.

• Item Type: MPRA Paper
• Language: English
• Keywords: human capital; urban growth; skills; education; population changes
• Subjects: J - Labor and Demographic Economics > J2 - Demand and Supply of Labor > J24 - Human Capital ; Skills ; Occupational Choice ; Labor Productivity; N - Economic History > N3 - Labor and Consumers, Demography, Education, Health, Welfare, Income, Wealth, Religion, and Philanthropy > N34 - Europe: 1913-; R - Urban, Rural, Regional, Real Estate, and Transportation Economics > R1 - General Regional Economics > R11 - Regional Economic Activity: Growth, Development, Environmental Issues, and Changes

References

FABERMAN, J. (2005): “What’s in a City?: Understanding the Micro-Level Employer Dynamics Underlying Urban Growth,” U.S. Bureau of Labor Statistics, (386).

GLAESER, E. L. (1994a): “Cities, Information, and Economic Growth,” Cityscape, 1, 9-47.

GLAESER, E. L. (1994b): “Why Does Schooling Generate Economic Growth?,” Economics Letters, 44, 333-337.

GLAESER, E. L. (2003): “Reinventing Boston: 1640-2003,” Discussion Paper 2017, Harvard Institute for Economic Research.

GLAESER, E. L., J. KOLKO, AND A. SAIZ (2001): “Consumer City,” Journal of Economic Geography, 1(1), 27-50.

GLAESER, E. L., AND A. SAIZ (2004): “The Rise of the Skilled City,” Brookings-Wharton Papers on Urban Affairs.

GLAESER, E. L., J. SCHEINKMAN, AND A. SHLEIFER (1995): “Economic Growth in a Cross-Section of Cities,” Journal of Monetary Economics, 36, 117-143.

GLAESER, E. L., AND J. M. SHAPIRO (2003): “Urban Growth in the 1990s: Is City Living Back?,” Journal of Regional Science, 43(1), 139-165.

GUMPRECHT, B. (2003): “The American College Town,” Geographical Review, 93(1), 51-80.

KRUGMAN, P. (1991): “Increasing Returns and Economic Geography,” Journal of Political Economy, 99(3), 483-499.

LUCAS, R. E. (1988): “On the Mechanics of Economic Development,” Journal of Monetary Economics, 22, 3-42.

MORETTI, E. (2004): “Estimating the Social Return to Higher Education: Evidence from Longitudinal and Repeated Cross-Sectional Data,” Journal of Econometrics, 121, 175-212.

NARDINELLI, C., AND C. J. SIMON (1996): “The Talk of the Town: Human Capital, Information, and the Growth of English Cities, 1861 to 1961,” Exploration in Economic History, 33(3), 384-413.

ROBACK, J. (1982): “Wages, Rents, and the Quality of Life,” Journal of Political Economy, 90(6), 1257-1278.

SCHULTZ, T. W. (1976): Transforming Traditional Agriculture, Ayer Co Pub.

SHAPIRO, J. M. (2006): “Smart Cities: Quality of Life, Productivity, and the Growth Effects of Human Capital,” Review of Economics and Statistics, 88(2), 324-335.

SIMON, C. J. (1998): “Human Capital and Metropolitan Employment Growth,” Journal of Urban Economics, 43, 223-243.

SIMON, C. J., AND C. NARDINELLI (2002): “Human Capital and the Rise of American Cities, 1900-1990,” Regional Science and Urban Economics, 32, 59-96.