Exports, prosperity, and cities

What does New Zealand do to pay its way, in the global context? And what could it do differently? These are an important questions because New Zealand is a small, trade-exposed country. We produce some of the things that we need locally, but many other things must be imported, which means that we need to export something in return. For instance, I’m writing this post in a flat built from bricks that were (probably) fired in New Lynn and timber that was sawn locally, sitting on a chair that was made in Auckland. But the computer I’m writing it on was assembled in China using parts and patents from all …
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The Auckland productivity premium

The Motu Institute recently published new research into the urban productivity premium in New Zealand, or the degree to which firms and workers in big cities tend to produce more and earn higher wages. This is an essential issue for urban and transport policy as it gets to the heart of why we have cities. As we’ve discussed in the past, cities offer opportunities for better connections between firms, workers, and customers, leading to better economic outcomes. (Economists usually describe this as agglomeration economies.) In the paper – with the enthralling title of “Urban productivity estimation with heterogeneous prices and labour” – researcher Dave Maré sets out to update and …
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City size, variety, and consumer surplus

In the 1990s, in the early years of the information technology revolution, economist Robert Solow famously commented that “you can see the computer age everywhere but in the productivity statistics.” Two decades on, that still rings true. Social life has been profoundly transformed by new technology: It has altered the way we communicate with friends and family, how we entertain ourselves, and even how we date. When I read Douglas Adams’ Hitchhiker’s Guide to the Galaxy in the early 2000s, the titular device still seemed like a fantastical idea: a handheld device you could use to access information (much of it inaccurate or incomplete) on anything, from anywhere. Now, we …
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Urban form and agglomeration economies – the impact of “edge cities”

Last week, I took a look at the contribution of agglomeration to Auckland’s recent economic growth. Based on observed changes to employment density over the period, plus agglomeration elasticities calculated by David Maré and Daniel Graham, I estimated that 11-12% of Auckland’s recent productivity growth was due to increased urban scale and density. The gains from agglomeration since 2000 are significant: Auckland’s GDP is approximately $1.4 billion larger as a result. Ultimately, productivity gains are good for everyone. If you’re retired, they help to pay your pension. If you’re in school, they help pay your teachers and living costs. In between, they help fund your health care and pay for …
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The contribution of agglomeration to economic growth in Auckland

We’ve written quite a bit about agglomeration economies, as they’re one of the most important forces shaping urban life. Agglomeration economies refer to the benefits of proximity for economic and social interaction – when you’re around more people, it’s easier to meet the right person (for business or relationships!), easier to share knowledge, and easier to do things in general. One “stylised fact” from the economic literature is that cities that are larger and better connected – i.e. denser and/or easier to get around – tend to be more productive. When it comes to economic performance, size matters. This benefits firms and workers, of course, but it is also good …
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The “consumer city” and urban growth in Christchurch

This article was originally posted on Making Christchurch, a group blog set up by Barnaby Bennett in the wake of the 2011 Canterbury Earthquake, at the invitation of Transportblog commenter Brendon Harre. Why do cities grow and change? And how can cities harness those dynamics? Last month, I took a look at agglomeration economies, which describe the productivity and innovation gains arising from urban scale and density. The advantages that cities offer for production have underpinned urban success throughout history. Economic productivity is important. To paraphrase Paul Krugman, in the long run, productivity growth underpins our ability to consume more of everything from electronics to healthcare, and to have more …
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Building a better city: Policies and perspectives (part 1 of 2)

This is the first half of a two-part series of posts. It summarises a few ideas that have been banging around the back of my head for a while – basically, an attempt to answer the question: “What can economics do for cities?” In this part, I discuss a couple of important concepts: agglomeration economies, which underpin cities’ existence and ongoing success, and the potential role of pricing mechanisms for managing urban ills. What do cities do? Cities mean different things to different people. They are places to work, places to play, places to invest, places to consume, places to conduct politics, places to realise one’s individuality, places to blend …
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Are cities really getting less dense?

I have been pondering a comment in William Fischel’s generally excellent new book on zoning to the effect that: …suburbanization and reduced urban density are worldwide phenomena. All but 16 of the 120 urban areas on every continent grew outward and reduced their overall population densities in the last decade of the previous millennium, even as almost all of them grew in total population. This is an interesting claim, but one that I find very difficult to reconcile with the evidence on other “big picture” changes observed in cities over the last three decades. In recent decades, agglomeration economies have gotten stronger and the structure of advanced urban economies has …
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Better cities can answer New Zealand’s export woes

In recent years the New Zealand economy has benefitted from tailwinds – strong Chinese demand for milk powder and raw logs, net inward migration driving up house prices, and, sadly, the need to rebuild our second-largest city. But should we be so happy to rest on our good fortunes, or are there long-term risks we need to manage? If so, how can we address them? History teaches us that bad things can happen to small, wealthy agricultural exporting nations that don’t succeed in evolving up the value chain. Argentina is a great – and troubling – example. In 1900 it was one of the wealthiest countries in the world, with …
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Better cities mean a wealthier New Zealand

Last week I took a look at whether government policy to support regional economies could divert growth away from Auckland. Based on the historical evidence, the answer seems to be no – people want to live in Auckland and start businesses here, and it’s senseless to try and stop that. Today, I want to look at this issue from a different angle, and ask: If we somehow succeeded in stifling Auckland’s growth, would we be better off as a result? Would New Zealand be richer if it cancelled the City Rail Link, banned any new dwelling construction in Auckland, and told newcomers to bugger off to Timaru (or, more likely, …
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