Cities: urban density and agglomeration

What makes cities successful? As economist Robert Lucas noted in the late eighties, “if we postulate only the usual list of economic forces, cities should fly apart.” Since Lucas’ assertion, scholars have recognised that the economic and social success of an urban environment depends on its ability to facilitate human interactions and a diversity of economic activities. This perspective naturally lends itself to network and data analysis, and the study of cities as complex adaptive systems.

Labor informality, associated with low productivity and lack of access to social security services, dogs developing countries around the world. Rates of labor (in)formality, however, vary widely within countries – with a positive relationship between the rate of labor formality and the working age population in cities. We hypothesize that this phenomenon occurs through the emergence of complex economic activities: as cities become larger, labor is allocated into increasingly complex industries as firms combine complementary capabilities derived from a more diverse pool of workers. Using data from Colombia, we use a network-based model to show that the technological proximity of current industries in a city to potential new complex industries governs the growth of the formal sector in cities [1]. In follow-on work, supported by a grant from the Development Bank of Latin America, we investigated the commuting radius within which skills optimally mix to generate this formal employment [2].

Firms or industries tend to cluster in cities for several reasons depending on their needs, but typically to reduce costs such as shipping costs, searching and matching costs via labour market pooling, and promote knowledge sharing (the so-called Marshallian channels). While it has long been understood that it is these ‘externalities’ that lie at the root of the success of cities, there has been little success in estimating the relative importance of each Marshallian channel to firms’ decisions – a key question for city planners and policy-makers. Building on previous work (Ellison and Glaeser), we have developed a novel econometric approach to extract an estimation of the importance of each Marshallian channel [3]. 

You can read more about my work on cities here.

Developed as part of a team at the Center for International Development at Harvard University, you can explore diversification opportunities for cities and states in Colombia and Mexico using network mapping tools by visiting and

  1. O’Clery N, Gomez A & Lora E (2016) The Path to Labour Formality: Urban Agglomeration and the Emergence of Complex Industries. Center for International Development Working Paper.
  2. O’Clery N & Lora E (2016) City size, distance and formal employment creation. Development Bank of Latin America (CAF) Working Paper.
  3. Diodato D, Neffke F & O’Clery N (2016) Agglomeration economies: the heterogeneous contribution of human capital and value chains. Papers in Evolutionary Economic Geography.