Abstract
Discussions of economic growth require an examination of the role of cities. It is widely claimed that cities exist because they facilitate economic growth and development. Spatial concentrations reduce transactions costs. There are additional benefits gained as positive spillover effects are realized. The latter is especially important for the exchange of ideas. Creativity comes from new arrangements of thoughts and ideas. The thoughts of others facilitate new combinations of ideas. It is argued here that propitious spatial arrangements make both sets of benefits possible. These arrangements involve choices from a very large combinatorial set. The choice problem is too complex to entrust to models or planning agencies. Rather, flexible land markets are required. This paper is based on the author’s presidential address delivered at the February 2012 meetings of the Western Regional Science Association in Kauai, Hawaii.
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Notes
Not to be confused with “brainstorming”, which gets mixed reviews (Kohn and Smith 2011).
Quoted at Your Brain and You http://yourbrainandyou.com/category/evolution/.
Cited in Sowell (2007), p. 11.
Gordon and Ikeda (2011).
One exception published after our survey is by Kolenda and Liu (2012); they look at “creative industries” at the sub-metropolitan level, comparing central city versus suburban locations.
Employment densities are only available for a subset of PUMAs.But the correlation between population and employment density for 65 PUMAs among our top-fifty sets was 0.83.
See, for example, Cummings and Kiesler (2005).
Lee (2007).
About 25 years ago, Jim Moore and I tried to describe what a first-best version might be. Gordon and Moore (1989). But this was a static approach that falls short of the complexity described here.
Russ Roberts calls emergent orders “The Deepest Thing We Know.” http://cafehayek.com/2012/02/the-deepest-thing-we-know.html.
Several types of agglomeration economies (shared inputs, labor market pooling, and knowledge spillovers) were identified by Marshall (1890). Urbanization mitigates many direct transactions costs.
Marshall also emphasized transactions costs that involve third parties (shared inputs and labor market pooling), as well as benefits (spillovers) that occurred without transactions. Knowledge spillovers are important part of Marshall’s third category, but these do not necessarily involve transactions and are, therefore, not addressed by the New Economic Geography, which concerns itself with “pecuniary” externalities and which ignores land markets. Yet, the analysis presented here suggests how and why such spillovers can become pecuniary – and that this requires land markets. Over time, there is also path dependency, which can be seen as an intertemporal agglomeration effect.
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Gordon, P. Thinking about economic growth: cities, networks, creativity and supply chains for ideas. Ann Reg Sci 50, 667–684 (2013). https://doi.org/10.1007/s00168-012-0518-0
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DOI: https://doi.org/10.1007/s00168-012-0518-0