Unveiling the Hidden Impact of Urban Land Rents on Total Factor Productivity
Finds that high urban land rents suppress total factor productivity by misallocating labour and capital across cities.
Summary
This 2023 IMF working paper examines how high urban land rents affect aggregate productivity. It connects the microeconomics of land to a macroeconomic outcome — total factor productivity (TFP).
Key Finding
High land rents in productive cities act as a barrier to entry: workers and firms that would be most productive in expensive, high-opportunity locations are priced out, and economic activity is pushed to less productive places. The result is a misallocation of labour and capital that lowers aggregate TFP. By implication, policies that reduce the private capture of land rent — such as a land value tax — could raise productivity by improving locational allocation.
Bears On
Sources
- Bas Bakker (2023), "Unveiling the Hidden Impact of Urban Land Rents on Total Factor Productivity," IMF Working Paper. PDF