Urban Economics

John M. Hartwick

• Publisher: Routledge
• Year: 2015
• ISBN:
  9781317511953
• Edition: 1
• Topic: Business
• Subtopic: Business General
• Index: Business

This textbook offers a rigorous, calculus based presentation of the complexities of urban economics, which is suitable for students who are new to the subject. It focuses on structural details and explains the elements that make cities such highly productive entities, and also explores explores the mechanisms of labour productivity enhancement that are unique to cities.

Written with a focus on location theory, key topics include:

• How cities are arranged;
• Housing prices;
• Urban transportation;
• Why some cities grow rapidly whilst others decline;
• How wages adjust to local costs of living;
• How suburbs function in relationship to the urban core;
• Public finance.

This book will be essential reading for Urban Economics courses at both undergraduate and postgraduate level.

1
The city as a trading entity

A city with a minimal internal structure trading as a “nation” in a system of cities (other “nations”). Equilibrium size of the city. Effects of local climatic amenities. Recent data on trade among cities in the United States.

Introduction

One way to think of one’s own city is as a point on the globe engaged in trade with many other places in one’s own country and often beyond. This is how we start our inquiry into urban economics or the economic analysis of cities. Often when people think of their city, they think of the downtown and their neighborhood and perhaps the airport and the local stadium. This involves thinking about the internal structure of a city, a standard perspective in urban economics. A third perspective might be the fiscal health of one’s city—how much concern is being expressed about high property taxes, and difficulties about councillors balancing the city’s budget. We will of course get to the economics of the internal structure of a city as well as issues in city budgeting and revenue generation. First, however, we deal with a city as a trading entity living off exports, so to speak. Early urban economists spoke of a city’s basic activity (exporting key commodities) and its non-basic activity (local retail and government, and production for the local market). Our model of a city as trader, below, will comprise the city’s export activity, its residential activity, its government activity and its production of a local or non-traded good.

First, we look at some recent information on US cities as trading entities, information compiled by the Brookings Institution in Washington, DC (Tomer et al. 2013). The new data come in 12 categories (five commodities associated with “advanced industries” and seven associated with “non-advanced industries”). The typical observation is aggregate flow in dollars of a commodity into and out of a city. The Brookings–JP Morgan “Global Cities Initiative” has established that:

the 100 largest American metropolitan areas trade the greatest volume of and the most valuable goods. Products leaving these areas are worth more than the products entering them… every metro area has trade surpluses in at least one commodity and almost all in more than one.

(Tomer et al. 2013; p. 1)

The Brookings study also established that:

• the 100 most active trading cities trade commodities with an average value of US$1563 per ton, about 40 percent above the average value of all traded goods in the United States, while non-metropolitan regions trade commodities worth US$680 per ton (Tomer et al. 2013; p. 7); and
• the 100 large-trade cities dominate American international trade as well (some 63 percent of total foreign trade). Goods traded internationally tend to be in the high value per ton category (precision instruments, electronics, machinery/tools and transportation equipment). New York, Houston and San Jose are in the top five of cities doing international trade, by weight. Jackson, MS, Honolulu and Tulsa are not huge trading cities per se, but their trade is oriented to international markets (Tomer et al. 2013; p. 12).

We focus here on the top 25 cities by trade value. This set is not quite the same as the top 25 cities by value of production (local gross domestic product (GDP)), but there is much overlap (the top 25 commodity traders have local GDPs that sum to 49 percent of the national GDP for 2010). Drawing on tables in the Brookings report, we link large-trade flows by commodity type to these top trading cities. We observe a pattern. The largest traders are fairly diversified across commodity types in their trade but tend to be large traders in advanced industrial activities. The medium-sized large trading cities are also quite diversified but tend not to exhibit concentrations in particular commodities. The smaller large traders tend to be specialized in certain non-advanced commodities. See Table 1.1 for details. The Brookings study has not developed trade flows for services such as government, advertising, legal work and medicine. Almost all cities have a market area for such services and certain key large cities have large market areas.

Tomer et al. offer further insight into trade deficits and a service-based economy:

How do metropolitan areas offset trade deficits in particular commodities? Some metro areas use their surpluses in other traded goods to pay for these products, but they also use tradable services. These include a range of occupations, from financiers and product designers to hotel managers and professional athletes. When service firms and workers sell their products to outside markets, they bring new income to a metropolitan area. The United States already runs an international surplus in tradable services—primarily driven by services exported from the 100 largest metropolitan areas—and there is every reason to believe the same is occurring on the domestic side. These services help fund inflows and in some places may be enough to offset local goods deficits. Unfortunately there are no metro measures for services trade.

(Tomer et al. 2013; p. 17)

Washington’s service-based economy depends on global goods trade to operate, even though it primarily functions as a consumer rather than a producer. In stark contrast to industrial hubs like Houston and Portland, Washington does not have many surplus goods to distribute beyond its borders, except waste. However, that deficit should not diminish the metro area’s importance in global value chains, as it adds value in ways beyond physical production through its many service activities.

(Tomer et al. 2013; p. 19)

Thus the portrait of cities as traders and specialists in Table 1.1 is somewhat partial but still tells an important story. Cities tend to be very large traders when measured against their aggregate annual product and the largest traders are the largest cities (only six had a commodity trade value lower than the value of their GDP for 2010). They are quite divers...

Table of contents

• Cover
• Title
• Copyright
• Contents
• List of figures
• List of tables
• Preface
• Acknowledgements
• 1 The city as a trading entity
• 2 Land use for the simplified city
• 3 Distinct income classes and suburban employment
• 4 Wages, agglomeration and migration
• 5 Basics of location economics
• 6 Growth of cities
• 7 Transportation
• 8 Housing
• 9 The public sector
• 10 Populations, slums and planning
• References
• Index