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A Spatial Production Economy Explains Gross Metropolitan Product

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  • Hiroki Watanabe

Abstract

It has long been known that the city-size distributions are fat tailed, drawing the interest of urban economists. In contrast, not much is known about the distribution of GDP at city level (henceforth referred to as gross metropolitan product, GMP). We build a model of the spatial economy that includes production and confirm the following empirical facts about the GMP counterpart of the city-size distribution. First, both Zipf's and Gibrat's law hold for the distribution of GMP as well. In particular the GMP distribution is well-traced by a lognormal distribution. Second, citywide aggregate production exhibits increasing returns to scale with respect to employment. In particular a 1% increase in employment leads to a 1.117% (or 1.180% in theory) increase in GMP. Agglomeration economies are explained as a result of an endogenous trade-off between externalities and land consumption of consumers.

Suggested Citation

  • Hiroki Watanabe, 2015. "A Spatial Production Economy Explains Gross Metropolitan Product," ERSA conference papers ersa15p30, European Regional Science Association.
    • Handle: RePEc:wiw:wiwrsa:ersa15p30
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    More about this item

    Keywords

    Zipf's Law; Gibrat's Law; GDP by City; Production Economy;
    All these keywords.

    JEL classification:

    • D51 - Microeconomics - - General Equilibrium and Disequilibrium - - - Exchange and Production Economies
    • E2 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment
    • R12 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Size and Spatial Distributions of Regional Economic Activity; Interregional Trade (economic geography)

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