Firm location and city size: Reduced productivity advantages as a factor in the decline of manufacturing in urban areas

Abstract This paper develops a model of firm location and city size that arrives at theoretical conclusions that differ from those of other authors. Comparative-statics results suggest that changes in national wage levels and productivity levels create no determinate (dis)advantage for large cities relative to small ones as sites for manufacturing activity. Increased wage and reduced productivity premiums of large cities, however, result in unambiguous disadvantages. Statistical analysis indicates that the productivity advantages of large cities have declined in as many as eight two-digit manufacturing industries that provide more than one-third of metropolitan production worker employment.

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