"Measuring Urban Agglomeration Economies"

In this paper, we estimated the net agglomeration economies both in production side and in consumption side using Japanese city data around 1990, when interregional net migration nearly ceased. We showed that doubling city size increases that nominal wage about 10% while it decreases the real wage about 4%. A 10% up of the nominal wage is attributed to the productivity increase in production activities while a 4% down of the real wage is a compensation for the net agglomeration economies, which are the benefits from product variety minus the costs of congestion. That is, city bigness not only enhances productivity of firms, but also brings net agglomeration economies to households. In this way, we separated the net agglomeration economies in production side from those in consumption side.