Abstract
It is postulated that the availability of amenities and city-specific locational advantages influence the location choices made by economic agents. We model productivity and availability of amenities, as exhibited by the presence of wage and rent differentials among Indian cities, as drivers of economic activity. Using person-level survey data pertaining to 27 class I cities (cities with a population of more than 100,000) in India, we construct the observed wage and rent differentials and classify the cities based on levels of productivity and amenities. In a federal structure of governance, where locational tournaments have an important bearing on local economic development and the export potential of a city, this exercise has important implications for the design of local public expenditure policy.
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