Smart Cities: Explaining the Relationship between City Growth and Human Capital

Abstract

From 1940 to 1990, a 10 percent increase in a metrpolitan area's concentration of college-educated residents was associated with a .6 percent increase in subsequent employment growth. Using data on growth in wages and house values, I attempt to distinguish between explanations for this correlation based on local productivity growth, and explanations based on growth in local consumption amenities. Calibration of a city growth model suggests that roughly two-thirds of the growth effect of human capital is due to enhanced productivity growth, the rest being caused by growth in the quality of life. This contrasts with the standard argument that human capital generates growth in urban areas solely through local knowledge spillovers.