Events

Prof. Dennis Novy
Professor of Economics
University of Warwick

Over the past few decades high-income countries have experienced a structural shift of economic activity from manufacturing towards services. Using rich administrative micro data from France, we show that this structural change has been urban-biased: areas with high population density have seen a faster shift into services than less densely populated locations. These patterns are accompanied by large manufacturing firms disproportionately leaving large cities for small cities. Large cities have also experienced a disproportionate increase in services exports. Motivated by these findings, we build and estimate an open economy model of cities to quantify the role of agglomeration forces, falling trade costs, and sectoral productivity growth in shaping urban-biased structural change. While agglomeration benefits have strengthened for services firms, we find that such benefits have declined significantly for large manufacturing firms. Falling international trade costs further reinforced the sorting of services firms into large cities.