Specializing in Cities: Density and the Pattern of Trade

Abstract

Variation in urban density is a core determinant of patterns of productivity within countries, but does it also shape patterns of trade across countries? We develop a strategy to estimate the extent to which local population density boosts productivity in each industry. Combining these industry-level estimates with fine-grained global population data, we show that both US states and countries with more spatially concentrated ("denser'') populations disproportionately export in density-loving sectors. The estimates are similar using an instrumental variables strategy that exploits countries' historical population distributions, and are driven by variation across sectors in the importance of R&D and collaborative/interactive tasks in production. We rationalize these findings with a model in which national export specialization emerges endogenously from the distribution of factors within countries, and show how location-level data can be aggregated to measure country-level specialization.

Keywords: Density, cities, trade, comparative advantage

JEL Classification: F14, F16, R12, R13