Saturday, June 11, 2011

Did Detroit Die Because of Population Growth?

I am reading The Spatial Economy by Fujita, Krugman, and Venables, and they point out that a country's population growth can result in a city becoming depopulated. That seems counterintuitive, but it actually makes sense if you understand what is going on.

In a low population country, it makes sense for manufacturing to be in a single city. Make everything there and ship it out to the rest of the country. But as the population increases and becomes denser, it makes sense to distribute your companies around the country, since shipping costs are thus made cheaper.

Consider Detroit. It made sense to make all the cars in Detroit because of increasing returns and because it was close to the rust belt, where iron and steel was being made. However, as the population increased, it made more and more sense to build factories elsewhere. This, in combination with competition from foreign car makers (who eventually began making their cars in the U.S. as well), redistributed auto manufacturing from Detroit through the rest of the country (and world). Thus, Detroit became depopulated as the main jobs disappeared.

In other words, simple population increase can explain the depopulation of Detroit. You cannot hold the economy still. And many things contribute to patterns of manufacturing.
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