Urban Development in the United States, 1690-1990.

• Author: Kim, Sukkoo

Sukkoo Kim [*]

The United States transformed itself from a rural to an urban society over the last three centuries. After a century of unremarkable growth, the pace of urbanization was historically unprecedented between the nineteenth and the early twentieth centuries. In the twentieth century, the urban population continued to increase but in a much more dispersed manner as the suburban population increased. Throughout these developments, cities also exhibited considerable variation in their population sizes. This paper finds that the pace and pattern of U.S. urban development are explained by changes in regional comparative advantage and in economies in transportation and local public goods, which in turn were determined by the changes in the economic structures of cities. This paper also finds that cities varied consider ably in size because the larger cities reduced market transaction costs associated with coordinating greater geographic division of labor.

1. Introduction

   The growing interest in the phenomena of increasing returns in economics has led to a great deal of work on issues concerning the causes of industrial location and city formation. One body of this work has been concerned with establishing the relative importance of natural advantages and increasing returns in determining the location of industries. For scholars such as Krugman (1991) and Arthur (1994), the overall patterns of industrial location and city formation are driven by increasing returns. 'On the other hand, Kim (1995, 1998, 1999) suggests that the long-run trends in U.S. regional specialization are consistent with explanations based on comparative advantage, and Ellison and Glaeser (1999); find that natural advantages may explain about half of the geographic concentration of industries. However, for scholars such as Henderson (1988), there is no conflict between comparative advantage and increasing returns. Indeed, some types of increasing returns may be nested in comparative advantage. Henderson a rgues that although comparative advantage may drive the overall proportion of economic activities of regions and cities, increasing returns are likely to play an important role in explaining why cities exist and where they locate.

   Another growing body of work in urban and regional economics has attempted to identify the nature of increasing returns. In particular, numerous studies have attempted to measure which of the Marshallian externalities, technological spillovers, labor market pooling, or nontraded industry-specific inputs, is empirically most significant. In addition, studies have attempted to identify whether these externalities are ones of localization or urbanization and whether they are dynamic or static. [1] This paper stresses the importance of economies in transportation and in the provision of local public goods. Trade involves transactions in information and in physical transfers of goods between buyers and sellers. If there are economies in physical, port, and terminal operation in transportation, then the costs of trade are lower in cities. In addition, if there are economies in the provision of local public goods such as water, gas, electricity, and communications, cities may lower the costs of trade between firms and workers and between firms themselves. [2]

   Over the years, urban economists have also been interested in explaining why city sizes differ. Despite the apparent historical persistence of this phenomenon, there seems to be little consensus of the exact causes as to why city sizes differ. The standard textbook explanation for the existence of an urban hierarchy is Christaller's (1966) central place theory, which explains the size distribution of cities based on economies of scale in retail markets. More recently, Dobkins and Ioannides (1999) propose a central place theory based on mercantile or wholesale trade, rather than retail trade. However, there are a number of alternative theories. For example, Henderson (1988) argues that the distribution of city sizes is due to economies of scale in manufacturing while others, such as Krugman (1996) and Gabaix (in press), argue that the size distribution of cities is a statistical artifact generated by a simple growth model.

   This paper attempts to shed some light on the causes of industrial location and city formation by documenting and examining the historical patterns of U.S. urban development. This paper finds that the pace and pattern of U.S. urban development are explained by changes in regional comparative advantage and in economies in transportation and local public goods. These in turn were affected by changes in the economic structure of the American economy from agriculture to manufacturing and then to services. In addition, the examination of the economic structures of cities by their sizes suggests that cities varied considerably in size over time because the larger cities performed special market-making functions. [3] Regional comparative advantage led to trade, but gains from trade did not come freely. In addition to the physical cost of transporting goods, the geographic division of labor increased market transaction costs. The concentration in large cities of market coordinators, as well as institutions that insp ected, certified, and enforced contracts, reduced the transaction costs associated with this greater geographic division of labor. In particular, the traders who held diverse private information concerning the supply and demand of goods through the market process revealed their information so that the buyers and sellers needed only to know the price and stochastic factors in the economy.

   The paper is organized as follows. Section 2 documents the historical patterns of U.S. urban development. Section 3 examines the causes of the long-run trends in U.S. urban development. Section 4 studies the relationship between the economic structures of cities and the size distribution of cities. Section 5 concludes with a summary.

2. U.S. Urban Development, 1690-1990

   The history of cities in the United States has witnessed dramatic developments over the last three centuries. In the late seventeenth and the eighteenth centuries, cities were few in number, concentrated along the eastern seaboard, and their activities were dominated by merchants who facilitated trade with Europe. In the early nineteenth and the early twentieth centuries, the onset of industrialization and the expansion of the domestic market significantly increased the number and size of cities. Moreover, a new type of city emerged in different places; unlike cities of the earlier period, large industrial cities sprang up in the northeastern and midwestern regions. The growing relative importance of services since the mid-twentieth century altered, once again, the overall pattern of urban development. The importance of the urban population continued to rise, but in a much more dispersed manner. The share of population in urban areas increased when measured in terms of metropolitan areas, but in terms of cit ies defined by political boundaries, it peaked and stabilized. Finally, this period witnessed a geographic shift in the share of large cities toward the southwestern regions of the United States.

   Table 1 presents data on the number and size of cities, where city is defined as an area having a population of greater than 2500. Between 1690 and 1790, the number of cities increased moderately from 4 to 24, but the percentage of urban population declined from 8.3% to 5.1%. In the period between 1790 and 1880, the number and size of cities grew at historically unprecedented rates. During this period, the number of cities increased from 24 to 939 and the percentage of urban population increased from 5.1% to 28.2%. The era of industrial cities reached its zenith between 1880 and 1920 when the number of cities increased from 939 to 2722, the number of cities with populations of more than 100,000 increased from 20 to 68, and the percentage of urban population increased from 28.2% to 51.2%. Although the number of cities continued to increase during the second half of the twentieth century, the level of urbanization peaked at 65% in 1960 and declined between 1960 and 1990 to 62%. Moreover, between 1960 and 1990, the proportion of urban population decreased in the largest cities with populations of more than 500,000.

   In the second half of the twentieth century, urban development in the United States was also characterized by a dispersal of the population out of central cities into suburban areas. Table 2 shows the changes in the number and size of metropolitan areas. [4] The information by metropolitan areas provides a strikingly different picture of U.S. urban development than that painted above. The data indicate a significant growth in the number of metropolitan areas in most size categories and an increase in the percentage of population in metropolitan areas from 51.0% to 77.5% between 1940 and 1990. Moreover, unlike the patterns exhibited in Table 1, the data in Table 2 show a reduction in the metropolitan population in the two smallest-size categories, a slight increase in the middle-size category, and a significant increase in the two largest-size categories. [5] Thus, the urban population not only continued to increase over the second half of the twentieth century as measured by metropolitan areas, but the very largest metropolitan areas continued to thrive during this period.

   The data indicate that the historical pace and pattern of U.S. urban development are closely linked to the changes in the economic structures of cities. In the late seventeenth and the eighteenth centuries, the economic structures of cities were dominated by the merchants and the surrounding hinterland activities in agriculture and other extractive industries. In the nineteenth century, the economic activities of the majority of cities were dominated by manufacturing. By 1820, the cities in the United...