In an economy experiencing endogenous economic growth and exogenous population growth, we explore two main themes: how urbanization affects efficiency of the growth process and how growth affects patterns of urbanization. Localized information spillovers promote agglomeration and human capital accumulation and fosters endogenous growth. Individual city sizes grow with local human capital accumulation and knowledge spillovers; and city with empirical evidence. We analyze whether local governments can successfully internalize local dynamic externalities. In addition, we explore how growth involves real income differences across city types and how urbanization can foster income inequality.

This paper uses data for eight manufacturing industries to test for and characterize dynamic production externalities in cities. The authors find evidence of both Marshall-Arrow-Romer (MAR) externalities, which are associated with past own industry employment concentration, and Jacobs externalities, which are associated with past diversity of local total employment. For mature capital goods industries, there is evidence of MAR externalities but none of Jacobs externalities. For new high-tech industries, there is evidence of Jacobs and MAR externalities. These findings are consistent with the notion that new industries prosper in large, diverse metropolitan areas but, with maturity, production decentralizes to smaller, more specialized cities.

This paper uses data for eight manufacturing industries in 1970 and 1987 to test for and characterize dynamic production externalities in cities. We find evidence of both MAR externalities, which are associated with past own industry employment concentration, and Jacobs externalities, which are associated with past diversity of local total employment. More specifically, for mature capital goods industries, there is evidence of MAR externalities but none of Jacobs externalities. For new high-tech industries, there is evidence of Jacobs and MAR externalities. These findings are consistent with notions of urban specialization and product cycles: new industries prosper in large, diverse metropolitan areas, but with maturity, production decentralizes to smaller, more specialized cities. For mature industries, there is also a high degree of persistence in individual employment patterns across cities, fostered by both MAR externalities and persistence in regional comparative advantage.

This paper examines unintended effects of air quality regulation, using plant data for 1963–92. A key regulatory tool since 1978 is the annual designation of county air quality attainment status. Nonattainment status triggers specific equipment requirements, with the severity and enforcement of regulations rising with plant size. The differential in regulation favors attainment areas, reducing births for polluting industries in nonattainment areas by 26–45 percent. Industries and sectors with bigger plants are affected the most, shifting industrial structure toward less regulated single‐plant firms. Large preregulation plants do benefit from grand‐fathering provisions, but both grandfathering and shifts to small‐scale new plants contribute to environmental degradation.

This paper examines strategic behavior of developers who, through offering different congested public‐good packages and revenue/fiscal schemes, compete for residents who are differentiated by income. There is an endogenous determination of numbers and sizes of communities. Developers have an incentive to strongly differentiate their public‐good offerings. In terms of pricing strategies, developers exhibit sharply contrasting behaviors. In low‐income communities, housing consumption is subsidized once lots are priced. In high‐income communities housing consumption is generally taxed.