Milken Report – What Makes a City Thrive?


What factors distinguish cities that can withstand an economic downturn, or rebound afterward, from those that cannot? Are these factors unique to successful cities, or are there best practices that can be adopted in peer cities? Building on the Milken Institute’s Best-Performing Cities index, this paper examines what sets resilient cities apart.

The economic performance of a city is driven by a confluence of factors, including national and international trends, local government policy, industry mix, technological change, and the choices made by individual firms and entrepreneurs. The Milken Institute has tracked and evaluated the success of metropolitan areas in its annual Best-Performing Cities index since 1999, highlighting the urban regions that are outperforming peers on key measures of economic health, including total employment and wage growth.

Our scale includes a mix of one- and five-year indicators to capture recent momentum as well as achievement in the medium term. While cities that capitalize on a boom in their core industry can rise to the top of the index for a year or two and potentially present attractive investment opportunities, a sustained strong showing or swift rebound indicates a broader set of assets than a sharp rise and fall.

To separate the effects of the national business cycle within particular industries from locally relevant factors, cities should be compared with peers that share their mix of industries. Cities that outperform peers on the Best-Performing Cities index over time have been more competitive in some way that enabled them to weather the same external shocks more effectively. This may be due to a homegrown company that captured the market for a new technology, or it may be based on a local tax policy or regulatory environment that attracts investment, to offer two possible examples among myriad options.

Examining shared characteristics of resilient cities may offer insight into the practices that support sustained prosperity. To try to isolate the local factors without ignoring industry makeup, cities with similar economies were grouped using a cluster analysis, and performance over time on the Best-Performing Cities index was evaluated within groups. This approach unveiled trends common to the group as a whole and identified cities that had outperformed their peers during the period studied.

The use of cluster analysis was also motivated by a desire to build the peer groups on a solid foundation of industrial makeup and other key characteristics, rather than on existing, purely geographic or historical groupings. Different strategies and fortunes have meant that the experience of traditionally grouped Rust Belt cities, for example, have diverged since that name was first applied.

Decision-makers in cities across the country are dealing with their local economies as they are now and as they aspire to be, not as they once were or as people may still perceive them. Our new groups aim to reflect more current experience and identify peer economies that may be unexpected, in some cases, but are chosen systematically based on recent economic data.

This paper represents a first step in examining the resilience of cities. It will be followed by a series of case studies that explore the choices of successful cities and identify factors that helped them resist or recover from downturns. The broader aim of this series is to use the specific metropolitan experiences behind the numbers to offer decision-makers in peer regions a suite of best practices to consider as they pursue robust and sustained prosperity for their communities.

About Milken Institute
The Milken Institute is a nonprofit, nonpartisan think tank determined to increase global prosperity by advancing collaborative solutions that widen access to capital, create jobs, and improve health. We do this through independent, data-driven research, action-oriented meetings, and meaningful policy initiatives.

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SOURCE: Milken Institute