One of the most striking empirical regularities is the huge divergence in economic activity both across and within countries. Within countries this is most clearly illustrated by the vast differences in economic activity between cities and rural areas. In the US, for example, 17% of GDP is produced in just three metropolitan statistical areas, which occupy only 0.6% of the land area of the US (Allen and Donaldson 2020). Also within cities, there are enormous differences in economic activity and land use between peripheral locations and dense central locations. Despite these first-order facts, our quantitative understanding of the agglomeration and dispersion forces that shape the spatial distribution of economic activity is still imperfect.
Understanding the forces that shape the spatial distribution of economic activity is not only important in itself, but is also of key policy interest. Our limited ability to model these forces makes it difficult to predict the effects of policy interventions in cities, such as the construction of new transport infrastructure, changes in land use regulations or height restrictions on buildings. As a result, decisions on expensive transport infrastructure projects use simple rules of thumb which we know are far from perfect. The Covid pandemic and the move to more working from home have also increased the interest in understanding the forces that make some locations more attractive than others.
This project improves our ability to model the forces that shape cities by combining very detailed data for the entire population of Denmark over a more than 30-year period with advances in our ability to model cities. The project produces several new stylised facts. We document, for example, how people change locations over their life cycle and how choices are shaped by life events such as marriage and children. The project combines rigorous reduced form evidence with a quantitative spatial model, building on a literature that the PI has contributed to over the last 10 years. We develop the modelling in this literature to deal more realistically with worker heterogeneity and the dynamic impact of interventions in cities.
