1/09/2020

Do big cities help economic growth?

"Big cities tend to be governed by left of center politicians that often enacts anti-growth regulations. On the other hand, big cities also have enormous economic advantages associated with a concentration of high valued-added industries such as finance and tech. The real problem occurs when big cities are embedded in larger states that contain areas lacking in the benefits of “agglomeration”. Thus upstate New York has done poorly in recent decades, as firms would have little incentive to locate in smaller New York cities that are burdened by New York State regulations.

Illinois and Indiana are an almost ideal comparison. The two states are pretty similar, except that Illinois contains the huge Chicago metro area. As a result, Illinois governance is much more left wing, more in favor of burdensome regulations on business than is the case in relatively conservative Indiana. For this reason, smaller cities in Illinois are losing population while Indiana continues to grow pretty fast for a northern state. Since 2010, Illinois’s population has fallen from 12.83 million to 12.67 million. Indiana has grown from 6.48 million to 6.73 million. (The Northeast and North Central US are showing very little population growth.)"