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Good Eats, DurhamA Case Study in Urban AgglomerationCarmen AugustineApril 2013

+Introduction

Durham has changed a lot in the 4 years I have been at Duke

Most of the changes have been restaurant, bar, specialty food store openings

Why is Durham growing, and why is its economic growth concentrated in the food industry?

+Restaurant Openings in Downtown Durham

Sep

Jan

May

Oct

Feb Jul

Toast Feb-08Revolution Dec-08Cuban Revolution Jul-09Dos Perros Aug-09Beyu Caffé Jan-10Tobacco Road Sports Café Apr-10Dame's Chicken and Waffles Aug-10Scratch Aug-10Bull City Burger and Brewery Mar-11Geer Street Garden May-11Loaf Nov-11Mateo Aug-12Pizzeria Toro Oct-12

Loaf

Scratch

Dos Perros

BCBBRevolution

Tobacco Road Sports Cafe

Cuban Revoultion

Pizzeria ToroMateo

Beyu CaffeToast

Dame’s

+Urban Agglomeration

Urban agglomeration is the phenomenon that once a critical mass of businesses cluster in one urban area, the volume of activity alone is enough to attract other businesses

The most important implication of this model is that cities can form anywhere

Business activity, rather than natural resources or location, determines where new cities will form

Core-periphery model: agglomeration of manufacturing will occur at an urban hub, while agricultural producers will continue to exist at the periphery Consumers choose to locate based on wage rate, land rental rate and

availability of goods The periphery must continue to exist even as the core expands

+Krugman—1991

“Circular causation”—once a city is established, the benefits of agglomeration draw in more businesses and consumers

In order to minimize transportation costs, manufacturers cluster together—this becomes more important as production is broken into sub-industries; this is called the “price index effect”

An accumulation of businesses draws in more skilled labor, increasing the quality of labor and expanding the customer base; this is called the “home market effect”

Firms near each other share knowledge and technology Drawback: prices are inflated As long as transportation costs are low, the beneficial price index and

home market effects outweigh the cost of competition and a city will form somewhere in a rural landscape

+Krugman—1993

In a later paper, Krugman re-coins the concept of circular causation into “first nature” and “second nature”

Look at Chicago—there is not a wealth of natural resources available there

Minimization of transportation costs is the “first nature” that determines all possible locations where a city could form

The “second nature” of a city is the accumulation of businesses that attract more business—the city becomes a destination in and of itself

+Fujita

In a discussion similar to Krugman, he mentions the “snowball effect” of economic activity clustered in an urban center

Some of the benefits of agglomeration include: Transfer of knowledge Technology Low transportation cost Variety of products Density of laborers and consumers

Along with nontraded goods—cities attract a variety of businesses such as restaurants, law firms and barbershops that cannot be exported from the city, an additional benefit

Fujita more than others stresses the human benefit of agglomeration: people have a natural propensity to live around and interact with others, creating an intellectual and creative network “Face-to-face communication is most effective for rapid product development”

Information as a public good

+Hanson

The accumulation of business drives wage rate up, attracting laborers

Market access is a stronger draw than natural resources available in the city

+Transformation of the Monocentric System The previous models hypothesized formation of a single

city in a rural area How do you explain locations of cities in three-

dimensional space, and why some are closer than others?

Bifurcation is the division of urban activity between more than one geographic area

There are several theories by which bifurcation could occur in a city

+Fujita

Agglomeration is caused by circular causation (centripetal force, “second nature”, etc.), but frontier cities occasionally emerge at the periphery

There is some critical population Ñ at which competition between neighboring firms is so high that it is beneficial for firms to relocate to the periphery to reduce cost of importing agricultural goods

These periphery firms benefit from proximity to the rural market and low land/wage rates

At some distance x* the benefit of relocation is maximized, such that one can predict the bifurcation of an established center

For any N > Ñ, a city will bifurcate into one urban center with two peripheral cities at distances x* and –x* from the center

Bifurcation continues to occur as cities reach saturation

Population Size and Capacity Model Specifications

(Fujita 1997, 413)

+Partridge

New economic geography model: agglomeration shadows from an urban center limit the amount of economic activity that occurs in the surrounding region

Partridge hypothesizes that the centripetal forces of an urban center outweigh access to rural markets and lower cost at the periphery, pulling business into the city

Thus, it is beneficial for small cities to locate within the shadow of larger ones

Partridge tests a model relating growth rate of city to distance to high-tier urban centers, and finds that growth is higher with proximity to the center

NEG—An Alternative Model Proximity of Urban Centers

(Partridge, 452)

+Conclusions from Previous Literature Urban agglomeration acts as a centripetal force,

drawing in other business because of: Variety of other goods available Variety and availability of nontraded goods Quality of labor force Size of consumer base Knowledge sharing and technology

At a certain point, a city reaches saturation and bifurcates (Fujita)

Small (“low-tier”) urban centers benefit from being located proximally to large cities (Partridge)

+Dos Perros

Opened August 2009 at Mangum and E Parrish At the time, this was far removed from other restaurants in

the downtown area (Toast, Revolution, American Tobacco complex)

Owner Charlie Deal Mexican fine dining Over the past 4 years of operations, how have

restaurant openings in the downtown area affected business?

+Dos Perros Total Sales, 2010-2012

2009.5 2010 2010.5 2011 2011.5 2012 2012.5$0.00

$200,000.00

$400,000.00

$600,000.00

$800,000.00

$1,000,000.00

$1,200,000.00

$1,400,000.00

$1,600,000.00

Sales

+What about Bull City Burger?

The proximity of BCBB has actually helped Dos Perros draw more customers to the area west of Mangum St., Charlie tells me

When the wait is long at Dos Perros, customers can opt to eat at BCBB and come back another night

Bars (Alley 26) and bakeries (Loaf, Scratch) are even more complementary—restaurant patrons can have a drink at Alley 26 while they wait for a table

Charlie’s other restaurant, Jujube, is located in a strip mall in Chapel Hill—there is no spillover of consumers like there is in Durham, because if a table is not available guests will have to leave and come back, or just come back another night

+Dos Perros Saturday Night Average Seatings

2008.5 2009 2009.5 2010 2010.5 2011 2011.5 2012 2012.5 2013 2013.50

50

100

150

200

250

FebruaryMarchJuneSeptemberDecember

+Dos Perros Holiday Seatings

2008.5 2009 2009.5 2010 2010.5 2011 2011.5 2012 2012.5 2013 2013.50

50

100

150

200

250

300

Valentine's DayCinco de MayoNew Year's Eve

+Restaurateurs on Durham

“We’re sort of the envy of Chapel Hill and Raleigh.” – Charlie Deal Durham has a buzz that attracts customers Any new opening will draw in customers, even to restaurants that have

been open for years Downtown Durham has become a destination in itself

Matt Kelly, owner of Vin Rouge and Mateo, noticed a similar trend Having a diverse selection of quality restaurants drives business Chef’s reputation, location, skill are still important Durham has been attracting skilled and creative chefs—the success is

not simply due to concentration When Blu opened next door to Vin Rouge, he noticed no lag in

business DPAC creates another reason for Durham residents to come downtown

for dinner

+Conclusions

There are several possible explanations for Durham’s existence and success:

Concentration of business activity has drawn in other restaurants and food shops (evidence: Dos Perros)

The DPAC has created a reason for Durham residents to travel downtown

The proximity of Durham to Raleigh gives Durham residents access to the resources of a larger city with lower land rental cost

Even if there is an absence of natural resources, Durham has created a centripetal force that draws in new business

+Implications and Further Study

Does the success in Durham necessarily imply that Raleigh has reached saturation?

At what point will Durham reach saturation? Questions for further study:

What effect did the DPAC have on restaurant openings and business

How did the hub of activity at Geer St. and Rigsbee Ave. originate, and how has business changed over the past 1-2 years

Policy implications: How will toll roads impact the development of Raleigh and

Durham, both individually and as a core-periphery set?

+References

Fujita, M. and T. Mori, 1997, “Structural Stability and Evolution of Urban System,” Regional Science and Urban Economics, 27, 399-442

Fujita, M. and J. F. Thisse, 1996, “Economics of Agglomeration,” Journal of the Japanese and International Economies, 10(4): 339-378

Hanson, Gordon H., 2005, “Market Potential, Increasing Returns, and Geographic Concentration,” Journal of International Economics, 67, 1-24

Krugman, P., 1991, “Increasing Returns and Economic Geography,” Journal of Political Economy, 99, 483-499

Krugman, P., 1993, “First Nature, Second Nature, and Metropolitan Location,” Journal of Regional Science, 33, 129-144

Partridge, M. D., D. S. Rickman, K. Ali and M. R. Olfert, 2009, “Do New Economic Geography Agglomeration Shadows Underlie Current Population Dynamics Across the Urban Hierarchy?” Regional Science, 88, 445-466

+Questions?