Agglomeration and jobs

Abstract

This chapter discusses the literature on agglomeration economies from the perspective of jobs and job dynamics. It provides a partial review of the empirical evidence on agglomeration externalities; the functionality of cities; the dynamic relationship between cities, jobs, and firms; and the linkages between cities. We provide the following conclusions. First, agglomeration effects are quantitatively important and pervasive. Second, the productive advantage of large cities is constantly eroded and needs to be sustained by new job creations and innovations. Third, this process of creative destruction in cities, which is fundamental for aggregate growth, is determined by the characteristics of urban systems and broader institutional features. We highlight important differences between developing countries and more advanced economies. A major challenge for developing countries is the transformation of their urban systems into drivers of economic growth.