Infrastructure,Industrial Development,and Employment in Cities: Theoretical Aspects and Empirical Evidence

Abstract

The article examines the impact of infrastructure supply on private economic activity in cities. Using a simple theoretical model, which takes the financing of infrastructure services into account, it is shown that infrastructures affect the sector composition in cities and the competitiveness of cities. The model also indicates that infrastructure effects can be identified using labor demand functions, which gives a theory-based motivation for empirical testing. In the applied part of the article, labor demand functions for large West German cities are estimated that make it possible to quantify the effects of providing infrastructure services on local job markets. The estimates reveal that differences in regional infrastructure supply explain up to 20 percent of the observed interregional disparities in employment growth across West German cities.