Structural Change, Urban Congestion, and the End of Growth

Abstract

AbstractThis paper develops a two‐sector R&D‐based growth model with congestion effects from increasing urban population density. We show that endogenous technological progress causes structural change if there are positive productivity spillovers from the modern to the traditional sector and Engel's law holds. In turn, urban congestion effects cause a productivity slowdown in the modern sector. Eventually, economic growth may cease in the long‐run. We also show that land dilution by a larger workforce may give rise to negative scale effects on (GDP) per capita.