Urban externalities and city growth in Taiwan

The purpose of this paper is to investigate the influences of citywide and city-industry externalities on city growth. The effects of various externalities on city and industry growth for two different time periods in Taiwan are studied. The results indicate that employment growth at the city-industry level is: (1) negatively related to the initial city-industry employment; (2) positively related to the level of competition in the initial year; and (3) positively related to the degree of diversity in the initial year. The extent of the impact of the diversity externality is relatively large compared with the other effects. In addition, wage growth at the city-industry level is found to be: (1) negatively related to the initial city-industry wage rate; and (2) positively related to the degree of diversity in the initial year. Overall, we find that specialization hurts, competition helps, and city diversity helps both employment growth and wage growth. Our results favor Jacobs's theory, which would suggest that cross-industry externalities and local competition are more important for industry growth than are intra-industry spillovers.