City Growth: The Role of Knowledge Spillovers and Entrepreneurship

My thesis highlights potential drivers of the observed extent and heterogeneity of urban growth and further investigates the role of knowledge spillovers and entrepreneurship. My research contributions are as follows: First, I set up a simplifieed version of the Monocentric City Model to discuss how potential key drivers affect subsequent urban growth. I summarize previous empirical findings to examine the model's theoretical predictions. Second, I present a search-theoretic model of urban face-to-face interactions in which I further investigate the role of local knowledge spillovers for urban growth. It is the first theoretical urban model that explicitly distinguishes between two types of knowledge spillovers, the transmission and creation of knowledge. The model analysis suggests that an inefficient knowledge exchange in urban face-to-face interactions causes inefficient city sizes as agglomeration forces do not reach their optimal extent. Third, I investigate the causal relation between local entrepreneurship and subsequent growth. I argue that the perceived positive connection is partially due to reverse causality as entrepreneurs self-select into fast growing cities. I propose the 19th century patent activity across the US as an instrument for the distribution of entrepreneurial activity observed in the US today. It turns out that the entrepreneurship's influence on subsequent growth diminishes substantially once the issue of endogeneity is taken into account