Estimating the drivers of urban economic complexity and their connection to economic performance

Abstract

Estimating the capabilities, or inputs of production, that drive and constrain the economic development of urban areas has remained a challenging goal. We posit that capabilities are instantiated in the complexity and sophistication of urban activities, the know-how of individual workers, and the city-wide collective know-how. We derive a model that indicates how the value of these three quantities can be inferred from the probability that an individual in a city is employed in a given urban activity. We illustrate how to estimate empirically these variables using data on employment across industries and metropolitan statistical areas in the USA. We then show how the functional form of the probability function derived from our theory is statistically superior when compared with competing alternative models, and that it explains well-known results in the urban scaling and economic complexity literature. Finally, we show how the quantities are associated with metrics of economic performance, suggesting our theory can provide testable implications for why some cities are more prosperous than others.

Urban scaling laws arise from within-city inequalities

“…Owing to the greater diversity, specialization and matching in larger cities 8 , 35 , 36 , scarcer skills tend to concentrate in such cities 13 , 14 , 37 . This concentration implies that the skilled and the specialized are more likely to find others whose skills are complemented by their own, allowing for higher levels of productivity in economic activities 15 , 38 , 39 . Those whose productivity depends less on whom they interact with—typically the less specialized and the less skilled—do not reap similar returns to complementarity.…”

The Intrinsic Links of Economic Complexity with Sustainability Dimensions: A Systematic Review and Agenda for Future Research

“…The results reflect the multiple dimensions of sustainability and the broad spectrum of topics that have been studied in connection with the economic complexity approach. [29,37,128], urban economy [100][101][102], green economy [78,80,129], blue economy [87,88], orange economy [90][91][92], digital economy [94,96], shadow economy [97][98][99], specialization [115,130,131], jobs [132][133][134], patents [41,135], finance development [136,137], entrepreneurship [137][138][139], value chains [140,141], tech factors [142][143][144], circular economy [85,145,146], democracy [147][148][149], policies [11,103,104], governance…”

“…It has been noted that the economic development of countries is related to their urbanization processes during their economic growth phase. However, when countries have achieved economic growth, the importance of urbanization diminishes [101,102].…”

“…Source: Own elaboration based on the diagram of Duxbury and Gillette [3] "Four well-beings of community sustainability". Note: Economic and political dimensions of sustainability have focused on topics like different types of relatedness[29,37,128], urban economy[100][101][102], green economy[78,80,129], blue economy[87,88], orange economy[90][91][92], digital economy[94,96], shadow economy[97][98][99], specialization[115,130,131], jobs[132][133][134], patents[41,135], finance development[136,137], entrepreneurship[137][138][139], value chains[140,141], tech factors[142][143][144], circular economy[85,145,146], democracy[147][148][149], policies[11,103,104]...…”

Cities can benefit from complex supply chains

“…We use GMP or the level of economic activity in each city as a proxy for urban competitiveness and the ECI to quantify economic specialization 20 , 23 . In addition, ECI has been used to measure urban economic diversity 23 , 64 , 65 and predict urban economic growth 23 , 65 in United States cities. Note that we use Eqs.…”