14 A reasonable case can be made that restrictive practices on the land market and the failure to redistribute these rents properly is inefficient and constitutes an obstacle to urban growth.

15 Interestingly, Carlino et al. (2007) also find that this elasticity of innovation with respect to employment density or population size is not constant across the urban hierarchy. Patenting per capita appears to peak at approximately 5,700 jobs per square kilometer or a city population size slightly below a million.

16 Strong evidence linking product innovation to subsequent employment growth is nonetheless still missing. Kerr (2010) documents that a ‘breakthrough’ innovation in a city leads to a wave of subsequent innovations. This increase in ‘follow-up’ innovative activity is particularly strong in research fields where foreign-born scientists are more numerous. This is arguably linked to the greater mobility of foreign-born vs. native scientists.

17 It is well known that the analysis of entrepreneurship is plagued by fundamental measurement problems. Selfemployment captures most entrepreneurs, but unfortunately, it also captures many other workers who are not ‘true’ entrepreneurs. Using small firms is problematic for similar reasons. The entry of new establishments is also a highly imperfect measure, but for different reasons because it often measures establishments affiliated with an already established firm. To avoid these problems, one can focus on the more restrictive notion of new (independent) startups, which may be weighted by their employment.

18 Capturing the notion of ‘entrepreneurial culture’ is extremely difficult. For each sector, Glaeser and Kerr (2009) use the number of start-ups in other sectors. They find no association between start-ups in a sector and start-ups in other sectors of the same city after conditioning out other city variables.

19 To be more specific, true productivity is typically unobserved because one cannot easily condition out prices. Firm productivity studies do not measure the true ability of firms to generate output from inputs but rather their ability to generate value added.

20 Most models of market structure predict that more productive firms should be larger. The strength of the correlation between firm size and firm productivity should thus be indicative of how efficiently labor and capital are allocated. This exercise is known as the Olley-Pakes productivity decomposition (Olley and Pakes 1996). 21 If anything, the population growth rate of larger cities is lower. There is also mild evidence that more educated cities grow faster (see Duranton and Puga (2013) for a broader discussion of urban growth patterns). 22 Korea has been successful in this transition toward more differentiated cities (Henderson et al. 2001). Progress in other developing countries seems more uneven.

23 Further evidence is provided in Aarland, Davis, Henderson, and Ono (2007) and other related works by Vernon Henderson and Yukako Ono.

24 Although they are negatively correlated, diversity and specialization are not exact opposites. A city can be specialized if it has a sector with many times its national share of employment; it can, at the same time, be diversified if the rest of its employment mimics the national distribution of employment across sectors.

25 See the large literature initiated by Harris and Todaro (1970). See also Lall et al. (2006) and Duranton (2008) for critical assessments and discussions of policy misunderstandings of the Harris-Todaro framework. 26 Although there is a long tradition of evaluation of such programs in the literature, this recent wave of work is methodologically much sounder than earlier work. Most importantly, these recent studies are able to find more meaningful control groups to control for the endogeneity of the treatment. They are also able to work with the high level of spatial resolution that those studies require.

27 This does not imply that every aspect of labor market regulation should be uniform. The minimum wage, for instance, could differ across cities to reflect differences in productivity and in the cost of living.

28 This is not to say, of course, that issues surrounding residential squatting are perfectly understood. Parallel to the work cited above, recent works have investigated the political economy of squatting in developing cities (Feler and Henderson 2011) and modelled the micro-functioning of squatter settlements and eviction (Brueckner and Selod 2009).

29 The urban literature often considers a nominal measure of market access (city income weighted by inverse distance). Theoretical models highlight that what should matter is the ‘real market access’, which accounts for the price indices in each location. A large city nearby may not be an attractive market for local producers if the prices in that city are low. Unfortunately, local prices are unobserved. The trade literature has developed a number of ways to circumvent this problem (Redding and Venables 2004; Head and Mayer 2004).

30 Duranton and Turner (2012) estimate a 20-year elasticity of city population with respect to highway kilometers of approximately 0.15. Such an elasticity is enough to make roads a major determinant of urban growth, as suggested by most theoretical models of cities. However, in terms of cost-benefit analysis, this elasticity is low when one wants to justify the constructions of more highways in US metropolitan areas.

31 What distinguishes this recent wave of work on the effects of infrastructure relative to previous work is its 41