Propulsive or parasitic city? A reassessment of Baumol’s model on ‘cost disease‘ in a context of endogenous development

Baumol's model on cost disease was conceived with particular reference to the city, but this feature is generally neglected in subsequent commentaries. This is why no relevant role is attributed to the city, which simply appears as a geographical element. As the place where stagnant activities are normally located, it is here that the cost disease reveals its most striking consequence: the existence of a dilemma between the maintenance of a balanced growth between the stagnant and the progressive sector, on the one hand, and the maintenance of a non-declining rate of growth of the whole economic system, on the other. Although the literature has assuaged the radical nature of the dilemma, it has not yet been resolved. This paper shows that it dissolves by introducing a hypothesis of endogenous development, inside which the particular conditions of “dynamic proximity” existing in the city play a fundamental role.