Jul 28, 2017

This is not US only phenomenon. Agglomeration externalities create large productivity differences and it seems that they are constantly being underestimated.

Cities have higher productivity than other areas and larger cities have much higher productivity than smaller cities (in the developing world). Cities are like brains where bigger city thinks qualitatively better.

Housing constraints in larger cities put limits to the aggregate growth. Recent paper: "Housing Constraints and Spatial Misallocation, Hsieh and Moretti." http://eml.berkeley.edu//~moretti/growth.pdf

>We quantify the amount of spatial misallocation of labor across US cities and its aggregate costs. Misallocation arises because high productivity cities like New York and the San Francisco Bay Area have adopted stringent restrictions to new housing supply, effectively limiting the number of workers who have access to such high productivity. Using a spatial equilibrium model and data from 220 metropolitan areas we find that these constraints lowered aggregate US growth by more than 50% from 1964 to 2009.