Chapter 5: Diversity and Specialization in Cities: Why, Where and When Does it Matter?
5. Diversity and specialization in cities: why, where and when does it matter? Gilles Duranton and Diego Puga London School of Economics, UK and University of Toronto, Canada 1. INTRODUCTION At a time when most central governments, at least in developed economies, have abandoned the idea of a strongly interventionist industrial policy, a new economic activism seems to be on the rise at the local level. Local authorities frequently strive for speciﬁc patterns of economic activities in their jurisdiction. Speciﬁc models of industrial organizations are explicitly targeted, with the industrial districts of the Third Italy or Silicon Valley as prime models to be followed.1 While not all of these interventions are necessarily misguided, many seem to lack a clear rationale or even to be based on common misconceptions.2 The issues relating to the composition of cities are necessarily complex. Why are some cities specialized and others diversiﬁed? What are the advantages and disadvantages of urban specialization and diversity? To what extent does the structure of cities (and the activities of ﬁrms and people within them) change over time? How does the sectoral composition of cities inﬂuence their evolution? To answer these and related questions, this chapter starts by distilling some key stylized facts from the empirical literature on cities and the composition of their activities. We then turn to a review of different theories concerned with such issues, and study the extent to which these contribute to our understanding of empirical regularities. We structure these theories...
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