ABSTRACT
For a long time it was more or less ‘common sense’ that in order to realize economic growth there had only to be greater amounts of labour and capital. However, Solow (1956) famously showed that these conventional production factors could not entirely explain modern economic growth. Since then, economists have paid much attention to developing and testing theories of endogenous growth; see Acemoglu (2009) for a review. Glaeser et al. (1992) argued that growth is, to a large extent, an urban phenomenon and they attempted to merge theories of agglomeration benefits with endogenous growth. Their results confirmed Jacobs’ (1961) hypothesis that the presence and proximity of a variety of economic activities was particularly beneficial for growth. The main idea is that people pick up new ideas from interactions with others that carry out different
activities. Later developments in the literature include Duranton and Puga’s (2001) idea of ‘nursery cities’, which have a large amount of variation in economic activity and are particularly innovative. They are distinguished from other cities that are specialized in a limited number of activities. According to Duranton and Puga’s theory, new activities – process innovations – start experimentally in a nursery city and, after they have proved to be successful, application on a larger scale occurs in other cities where the labour force is specialized and production is less expensive. This suggests, of course, that nursery cities in particular are the engines of economic growth in a country, or perhaps even on a larger scale.
