Market Access and the Concentration of Economic Activity in a System of Declining Cities

Abstract

Market access has been widely used as a measure of agglomeration spillovers in models that seek to explain productivity, economic or population growth at the city level. Most results have shown that having higher market access is beneficial to these outcomes. These results, both theoretical and empirical, have been obtained in a context of population growth. This article examines the impact that market access has on a system of cities that has suffered a negative population shock. An extended version of the Brezis and Krugman (1997) model of life cycle of cities predicts that a system of cities experiencing population loss will see a relative reorganization of its population from small to larger cities, and that higher market potential will make this movement stronger. We test these predictions with a comprehensive sample of cities in Eastern Europe and Central Asia. We find that having higher market access - when operating in an environment of population decline - is detrimental to city population growth. This result is robust to different measures of market access that use population. Alternative measures that use economic size rather population are tested, and the result weaker. A possible explanation is that using NLs restricts the sample to only using larger cities.