Cities and the Vertical Economy

In today’s knowledge economy, the clustering of companies and talent is the key driver of innovation and economic growth. Such clustering is usually thought of as occurring horizontally on the flat plane of a map, across a geographic area with large concentrations of companies, highly educated workers, and capital. Even as our cities rise higher in the sky—and policy makers and urbanists call for increased densities—we have little understanding of the ways cities are organized vertically.

A new paper published in the Journal of Urban Economics takes a close look at the organization of economic activity in our increasingly vertical cities. Its authors, urban economists Crocker H. Liu, Stuart S. Rosenthal, and William C. Strange (my colleague at the University of Toronto’s Rotman School), examine the kinds of economic activities that cluster in tall buildings; the types of industries that concentrate on higher floors; the variation in rents in these vertical (as opposed to traditional horizontal) clusters; and the effects of such vertical clustering on city economies.