Cities and Economic Growth: A Review

Daniel Rauhut, Neelambar Hatti


Presently, there is no single, coherent theory on the causality between cities and economic growth, only a fragmented set of theories. Current patterns and trends for the relationship between cities and economic growth, however, suggest that a full understanding of contemporary processes will not be achieved by relying on the tools of one discipline alone, or by focusing on a single level of analysis. The aim of this literature review is to examine the leading contemporary theories on the relationship between cities and economic growth. The relationship can work in several ways by focusing on: the impact of economic growth on cities, the impact of cities on economic growth, and cities as an intermediate link to economic growth. Most theories however focus on the impact cities have on economic growth. One conclusion is that economic activities and economic diversification occur before cities are formed; without them, cities are not needed and hence cannot promote economic growth. The paper also discusses the various policies and policy designs used to promote cities as well as economic growth.

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