URSI 100--Introduction to the City


Economy of Cities

Fable of George & Mabel:

  • Innovative perception
  • Comparative advantage
  • Demand
  • Production
  • Employment
  • Surplus
  • Market
  • Maintenance mode
  • Growth Mode

Export base model

  • Urban economies are not self-sufficient
  • Performance of export sector determines fate of entire city economy
  • “Demand driven” model
  • “Basic multiplier”—ratio of total city income to earnings on exports
  • “Location quotient”—ratio of local to export employment, compared to national average
  • Simplification—ignores
    • Transfer payments
    • Flow of investment
    • Supply-side limitations
    • “import substitution”
    • capacity to develop new export firms/industries

Competition

  • Between cities—locational advantage
    • Transportation
    • Climate & amenities (“mailbox income”)
    • Infrastructure (capital and “quality of life”)
    • Characteristics of local labor force
      • Education & skills
      • Wage rate
      • Entrepreneurialism
    • Public safety
    • Tax burden
    • Agglomerative economies (more important for smaller firms) & localization economies
    • Diseconomies of scale
  • Urban Hierarchies
    • “Competition frontiers”
    • Hierarchy of city sizes
  • Globalization of competition
    • Causes
      • Better communications & transportation
      • Growing ease of international financial transactions
      • Reduction in tariffs & trade barriers
    • Effects
      • Weakening of unions
      • Polarization of wages based on skills
    • Advantages of economic growth
      • Tightens local labor market, pushing wages up and lowering unemployment

Expands tax base, easing fiscal pressure on local & state government

 

Based on LEVY, J.M. 2000. Urban America: Processes & Problems. Upper Saddle River, NJ: Prentice Hall.


MSU

2003 A.J.Filipovitch
Revised 1 January 06