Size and growth go hand in hand, until they don't, according to a new analysis. Density might be the reason that synergy eventually shortcircuit

A new study by economist Jordan Rappaport of the Federal Reserve Bank of Kansas City sees two very basic factors at work: the size and density of cities. On one hand, size (in terms of population and employment) is a huge advantage. Bigger places inexorably grow bigger. And this is especially true for relatively large cities (up to 500,000 people) with plenty of space to grow. For these places, their initially large populations beget faster growth over time.

But, on the other hand, density cuts the other way and can slow growth for very large places. This would seem to be at odds with urban theories from Jane Jacobs and others, that view density and clustering as an essential spur to innovation. But Rappaport finds that density generates diseconomies like traffic congestion or expensive housing costs, which limit growth.

Rappaport’s study collects data on population and job growth for more than 2,000 American communities, including more than 350 metropolitan areas, 554 micropolitan areas, and 1,300 “non-core” counties.

Growth versus 95th Percentile Population Density, Medium and Large Metropolitan Areas
Growth versus 95th Percentile Population Density, Medium and Large Metropolitan Areas © Federal Reserve Bank of Kansas City, Economic Review - Rappaport proposes that an economy is a spatial equilibrium: net flows of residents and employment slowly reach a balance. People may not be able to benefit by moving to a larger city because even with higher wages and more amenities comes a higher cost of living, higher housing prices, and other diseconomies. Businesses face similar problems, too. The combined effects of these flows of people and jobs accumulate slowly over time.

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Rappaport cautions against the use of large tax and financial incentive packages which confer targeted benefits to individual companies. He especially warns of the downsides of luring large employers, like Amazon’s HQ2, to superstar cities like New York, which are likely to exacerbate their already existing problems of high prices, traffic congestion, and other diseconomies of density. He argues that it makes far more sense to utilize economic development strategies that “broadly benefit local businesses and residents, both existing and new.”

Instead of incentive packages to lure in tens of thousands of new residents, Rappaport encourages policies that will spur economic growth for those who already live there.