Countries are not perfectly integrated market areas. Even if institutional differences are much smaller within than between countries, there are persistent local cultural differences. These differences act as barriers that reduce economic exchange: bilateral migration, trade, and knowledge...

The salient rank-size rule known as Zipf's law is not only satisfied for Germany's national urban hierarchy, but also for the city size distributions in single German regions. To analyze this phenomenon, we build on the insights by Gabaix (1999) that Zipf's law follows from a stochastic growth...