Urban Economics - Why do Cities Exist

Why do cities exist? This is an interesting question to ask. We are so used to seeing urban localities around us that we don't appreciate the reasons behind their existence. 

In a world without cities, there would be small hamlets dotted around the world. Each hamlet would have to be self-sufficient to some degree. There can be trade between those hamlets, but without proper transportation networks, it can be difficult to to carry out such trade. Indeed, after the emergence of internet, some people believed that cities would be made redundant, and people would move back to living in villages, but such did not happen. More than half the world's population now live in cities. 

There are three main reasons why cities exist:

1. Trading City: When there is home production, or production in a factory, the products are usually not traded just within the boundaries of the locality. In early times, it was easier for farmers and artisans to produce their products in the home village, and then take it to a nearby market where their products can be sold. People from other villages also would come to sell their wares or trade. These congregation later became trading cities. Many cities of history started their journey this way. The Phoenicians in some part, help to proliferate such cities. 

2. Factory City: With the emergence of the Industrial Revolution era, home production was no longer economic, and large factories were set up to produce a variety of goods. Hundreds, even thousands of  people were needed to work in factories. Many people moved from rural locales to places where there were factories. This led to the creation of factory cities or industrial towns. Many cities, like Shenzen in China, are operating under this model. 

A country may be too large for it to be served by one factory city. So, a system of factory cities developed to serve different parts of the country. 

3. Innovation Cities: A lot of cities have developed where a lot of research and development takes place, and a large number of people are attracted to live there. Stanford University helped n the creation of Silicon Valley, and that region has become an important innovation city. Similarly, the Research Triangle Park of Raleigh-Durham, North Carolina, is another example of innovation city. A lot of firms carry out research, while a number of secondary firms agglomerate in that area too to provide different ancillary services. 

A number of these innovation cities have a research university (or more) close by. Government research industries also can create innovation cities. 

However, all these could not have happened if agriculture did not develop. If agriculture did not mechanize, and productivity in the farming sector did not increase, there wouldn't be people who could devote time to industry and services, which ultimately led to the creation of cities. 

What makes a city grow? Human capital, initial unemployment and industrial activities are important. Glaeser, Scheinkman and Shleifer have shown that past levels of human capital positively affects growth rate of a city. Higher levels of unemployment and manufacturing activities in the past can reduce current growth rates of a city.

With the world evolving, cities are evolving too. Some world cities have become more important than others commercially, and cities have been ranked as alpha, beta and gamma cities. Some even think that international cities have more in common with each other than with the culture of their own countries. But, as more people move to cities, their importance will keep on increasing.