Modern metropolitan areas involve large concentrations of economic activity and the transport of millions of people each day between their residence and workplace. However, relatively little is known about the role of these commuting flows in promoting agglomeration forces. We use the revolution in transport technology from the invention of steam railways, newly-constructed spatially-disaggregated data for London from 1801-1921, and a quantitative urban model to provide evidence on the determinants of the concentration of economic activity in metropolitan areas.
Steam railways dramatically reduced travel times and hence permitted the first large-scale separation of workplace and residence to realize economies of scale. We show that our model is able to account both qualitatively and quantitatively for the observed changes in city size, structure and land prices