Urbanization and growth

In a simple urban economics framework, we aim at highlighting how the trade-off between optimal and equilibrium city size behaves when introducing dynamic human capital externalities in addition to the classical congestion externalities. Our purpose is to show that there are dynamic gains from statically oversized cities. To this end, we assume that productivity depends on human capital, which is solely accumulated in cities, such that urbanization is the engine of growth. (C) 2004 Elsevier Inc. All rights reserved.