This is a draft of a chapter written for eventual publication in the Handbook of Regional and Urban Economics, Volume 4, edited by J. Vernon Henderson and JacquesFrançois Thisse, to be published by North-Holland. We are grateful to the editors, to Johannes Bröker, Masa Fujita, Mike Peters, Frédéric Robert-Nicoud, and to the participants at the the 2002 narsa meetings for comments and suggestions. Funding from the Social Sciences and Humanities Research Council of Canada is gratefully acknowledged. The views expressed herein are those of the authors and not necessarily those of the National Bureau of Economic Research.

To study the detailed location patterns of industries, and particularly the tendency for industries to cluster relative to overall manufacturing, we develop distance-based tests of localization. In contrast to previous studies, our approach allows us to assess the statistical significance of departures from randomness. In addition, we treat space as continuous instead of using an arbitrary collection of geographical units. This avoids problems relating to scale and borders. We apply these tests to an exhaustive U.K. data-set. For fourdigit industries, we find that (i) 52% of them are localized at a 5% confidence level, (ii) localization mostly takes place at small scales below 50 km, (iii) the degree of localization is very skewed, and (iv) industries follow broad sectoral patterns with respect to localization. Depending on the industry, smaller establishments can be the main drivers of both localization and dispersion. Three-digit sectors show similar patterns of localization at small scales as well as a tendency to localize at medium scales. ABSTRACT: To shldy the detailed location patterns o. f industries, and particularly the tendency for industries to duster relative to overall manufacturing, w, e develop distance-based tests of localisation. In CQntrast to previous studies, our approach allows us to assess the statistical significance of dep~s from randomness. In addition, we treat space as CQntinuous instead of using an arbitrary collection of geographical units. This avoids problems relating to scale and borders. We apply these tests to an exhaustive UK data. set. For four-digit industries, we find that (i.) 52°/o of them are localised at aS% confidence level, (ii) localisation mostly takes place at small scales below 50 kilometres, (iii) the degree of localisation is very skewed, and (iv) industries follow broad sectoral patterns with respect to localisation. Depending on the industry, smaller establishments can be the main drivers of both localisation and dispersion. Three-digit sectors show similar patterns of localisation at small scales as well as a tendency to localise at medium scales. Disciplines Economics | Real Estate

Spatial wage disparities can result from spatial differences in the skill composition of the workforce, in nonhuman endowments, and in local interactions. To distinguish between these explanations, we estimate a model of wage determination across local labour markets using a very large panel of French workers. We control for worker characteristics, worker fixed effects, industry fixed effects, and the characteristics of the local labour market. Our findings suggest that individual skills account for a large fraction of existing spatial wage disparities with strong evidence of spatial sorting by skills. Interaction effects are mostly driven by the local density of employment. Not controlling for worker heterogeneity leads to very biased estimates of interaction effects. Endowments only appear to play a small role.Keywords local labour markets, spatial wage disparities, panel data analysis, sorting Disciplines Economics | Real Estate Comments• At the time of publication, author Gilles Duranton was affiliated with the University of Toronto.Currently, he is a faculty member at the Real Estate Department at the University of Pennsylvania. Abstract Spatial wage disparities can result from spatial dierences in the skill composition of the workforce, in non-human endowments, and in local interactions. To distinguish between these explanations, we estimate a model of wage determination across local labour markets using a very large panel of French workers. We control for worker characteristics, worker xed eects, industry xed eects, and the characteristics of the local labour market. Our ndings suggest that individual skills account for a large fraction of existing spatial wage disparities with strong evidence of spatial sorting by skills. Interaction eects are mostly driven by the local density of employment. Not controlling for worker heterogeneity leads to very biased estimates of interaction eects. Endowments only appear to play a small role.Key words: local labour markets, spatial wage disparities, panel data analysis, sorting jel classication: r23, j31, j61 a We are grateful to Lionel Fontagné, Vernon Henderson, Francis Kramarz, Thierry Magnac, Gianmarco Ottaviano, Barbara Petrongolo, Diego Puga, Jean-Marc Robin, Sébastien Roux, Jon Temple, Dan Treer, two anonymous referees, and especially Henry Overman for fruitful discussions, advice and encouragements. We also acknowledge France Guérin, Francis Kramarz and Sébastien Roux's kind and ecient help with the data. Seminar and conference participants in Bogotá, Bristol, Brown, CREST, Kiel, Lille, LSE, Marseille, Paris, Philadelphia, Rome, Royal Holloway, Stockholm, Stoke-Rochford, Toronto, UCL, and Villars also provided us with very useful feed-back.

This paper develops micro-foundations for the role that diversified cities play in fostering innovation. A simple model of process innovation is proposed, where firms learn about their ideal production process by making prototypes. We build around this a dynamic general equilibrium model, and derive conditions under which diversified and specialised cities coexist in steady-state. New products are developed in diversified cities, trying processes borrowed from different activities. On finding their ideal process, firms switch to mass-production and relocate to specialised cities where production costs are lower. We find strong evidence of this pattern in establishment relocations across French employment areas 1993-1996.Key words: nursery cities, diversity, specialisation, innovation, learning, life-cycle. jel classification: r30, o31, d83. * We are very grateful to Frédéric Lainé and Pierre-Philippe Combes for kindly providing us with the data on, respectively, plant relocations and sectoral composition of employment for French employment areas; also to Vernon Henderson for very helpful discussions, and to Nancy Gallini, Martin Osborne, and Dan Trefler for detailed comments on earlier drafts of this paper. We have also benefitted from comments and suggestions by

We estimate the effects of interstate highways on the growth of US cities between 1983 and 2003. We find that a 10% increase in a city's initial stock of highways causes about a 1.5% increase in its employment over this 20 year period. To estimate a structural model of urban growth and transportation, we rely on an instrumental variables estimation which uses a 1947 plan of the interstate highway system, an 1898 map of railroads, and maps of the early explorations of the US as instruments for 1983 highways. University of TorontoThis draft: 25 November 2008 Abstract: We estimate the effects of major roads and public transit on the growth of major cities in the us between 1980 and 2000. We find that a 10% increase in a city's stock of roads causes about a 2% increase in its population and employment and a small decrease in its share of poor households over this 20 year period. We also find that a 10% increase in a city's stock of large buses causes about a 0.8% population increase and a small increase in the share of poor households over this period. To estimate these effects we rely on an instrumental variables estimation which uses a 1947 plan of the interstate highway system and an 1898 map of railroads as instruments for 1980 roads.

Does productivity increase with density? We revisit the issue using French wage and TFP data. To deal with the 'endogenous quantity of labour bias (i.e., urban agglomeration is consequence of high local productivity rather than a cause), we take an instrumental variable approach and introduce a new set of geological instruments in addition to standard historical instruments. To deal with the 'endogenous quality of labour bias (i.e., cities attract skilled workers so that the effects of skills and urban agglomeration are confounded), we take a worker fixed-effect approach with wage data. We find modest evidence about the endogenous quantity of labour bias and both sets of instruments give a similar answer. We find that the endogenous quality of labour bias is quantitatively more important. Disciplines Real EstateThis working paper is available at ScholarlyCommons: http://repository.upenn.edu/real-estate_papers/21Estimating agglomeration economies with history, geology, and worker effects Pierre-Philippe Combes * † University of Aix-MarseilleGilles Duranton * ‡ University of TorontoLaurent Gobillon * § Institut National d'Etudes DémographiquesSébastien Roux * Centre de Recherche en Économie et Statistique February 2008ABSTRACT: Does productivity increase with density? We revisit the issue using French wage and TFP data. To deal with the 'endogenous quantity of labour' bias (i.e., urban agglomeration is consequence of high local productivity rather than a cause), we take an instrumental variable approach and introduce a new set of geological instruments in addition to standard historical instruments. To deal with the 'endogenous quality of labour' bias (i.e., cities attract skilled workers so that the effects of skills and urban agglomeration are confounded), we take a worker fixed-effect approach with wage data. We find modest evidence about the endogenous quantity of labour bias and both sets of instruments give a similar answer. We find that the endogenous quality of labour bias is quantitatively more important.

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We estimate the effect of interstate highways on the level and composition of trade for US cities. Highways within cities have a large effect on the weight of city exports with an elasticity of approximately 0.5. We find little effect of highways on the total value of exports. Consistent with this, we find that cities with more highways specialize in sectors producing heavy goods. University of TorontoThis draft: 21 July 2011 Abstract: We estimate the effects of interstate highways on the level and composition of trade for us cities. Highways within cities have a large effect on the weight of city exports with an elasticity of approximately 0.5. There is no discernible effect of highways on the total value of exports. Consistent with this, we find that cities with more highways specialize in sectors producing heavy goods.