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Geography, productivity and trade: does selection explain why some locations are more productive than others?

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  • Antonio Accetturo

    ()
    (Bank of Italy)

  • Valter Di Giacinto

    ()
    (Bank of Italy)

  • Giacinto Micucci

    ()
    (Bank of Italy)

  • Marcello Pagnini

    ()
    (Bank of Italy)

Abstract

Two main hypotheses are usually put forward to explain the productivity advantages of larger cities: agglomeration economies and firm selection. Combes et al. (2012) propose an empirical approach to disentangle these two effects and fail to find any impact of selection on local productivity differences. We theoretically show that selection effects do emerge when asymmetric trade and entry costs and different spatial scale at which agglomeration and selection may work are properly taken into account. The empirical findings confirm that agglomeration effects play a major role. However, they also show a substantial increase in the importance of the selection effect when asymmetric trade costs and a different spatial scale are taken into account.

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Bibliographic Info

Paper provided by Bank of Italy, Economic Research and International Relations Area in its series Temi di discussione (Economic working papers) with number 910.

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Date of creation: Apr 2013
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Handle: RePEc:bdi:wptemi:td_910_13

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Keywords: agglomeration economies; firm selection; market size; entry costs; openness to trade;

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  1. Kristian Behrens & Gilles Duranton & Fr�d�ric Robert-Nicoud, 2014. "Productive Cities: Sorting, Selection, and Agglomeration," Journal of Political Economy, University of Chicago Press, vol. 122(3), pages 507 - 553.
  2. Andrew B. Bernard & Stephen J. Redding & Peter K. Schott, 2007. "Comparative Advantage and Heterogeneous Firms," Review of Economic Studies, Oxford University Press, vol. 74(1), pages 31-66.
  3. Antonio Ciccone & Robert E. Hall, 1993. "Productivity and the Density of Economic Activity," NBER Working Papers 4313, National Bureau of Economic Research, Inc.
  4. Chad Syverson, 2004. "Market Structure and Productivity: A Concrete Example," Journal of Political Economy, University of Chicago Press, vol. 112(6), pages 1181-1222, December.
  5. Alla Lileeva & Daniel Trefler, 2010. "Improved Access to Foreign Markets Raises Plant-Level Productivity... for Some Plants," The Quarterly Journal of Economics, MIT Press, vol. 125(3), pages 1051-1099, August.
  6. Chad Syverson, 2003. "Product Substitutability and Productivity Dispersion," NBER Working Papers 10049, National Bureau of Economic Research, Inc.
  7. Toshihiro Okubo & Pierre M. Picard & Jacques-François Thisse, 2008. "The spatial selection of heterogeneous firms," CREA Discussion Paper Series 08-16, Center for Research in Economic Analysis, University of Luxembourg.
  8. Finicelli, Andrea & Pagano, Patrizio & Sbracia, Massimo, 2013. "Ricardian selection," Journal of International Economics, Elsevier, vol. 89(1), pages 96-109.
  9. Arimoto, Yutaka & Nakajima, Kentaro & Okazaki, Tetsuji, 2011. "Agglomeration or Selection? The Case of the Japanese Silk-Reeling Clusters, 1908-1915," CEI Working Paper Series 2010-11, Center for Economic Institutions, Institute of Economic Research, Hitotsubashi University.
  10. Marc J. Melitz & Gianmarco I.P. Ottaviano, 2005. "Market Size, Trade, and Productivity," Development Working Papers 201, Centro Studi Luca d\'Agliano, University of Milano.
  11. Richard E. Baldwin & Toshihiro Okubo, 2006. "Heterogeneous firms, agglomeration and economic geography: spatial selection and sorting," Journal of Economic Geography, Oxford University Press, vol. 6(3), pages 323-346, June.
  12. Diego Puga, 2009. "The magnitude and causes of agglomeration economies," Working Papers 2009-09, Instituto Madrileño de Estudios Avanzados (IMDEA) Ciencias Sociales.
  13. Robert E. Lucas & Esteban Rossi-Hansberg, 2002. "On the Internal Structure of Cities," Econometrica, Econometric Society, vol. 70(4), pages 1445-1476, July.
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  16. Volker Nocke, 2003. "A Gap for Me: Entrepreneurs and Entry," PIER Working Paper Archive 05-026, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania, revised 29 Sep 2005.
  17. Pierre-Philippe Combes & Gilles Duranton & Diego Puga & Sebastien Roux, 2009. "The productivity advantages of large cities: Distinguishing agglomeration from firm selection," Working Papers tecipa-353, University of Toronto, Department of Economics.
  18. OTTAVIANO, Gianmarco & THISSE, Jacques-François, 1999. "Agglomeration and trade revisited," CORE Discussion Papers 1999041, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  19. Marshall, Alfred, 1890. "The Principles of Economics," History of Economic Thought Books, McMaster University Archive for the History of Economic Thought, number marshall1890.
  20. Valter Di Giacinto & Matteo Gomellini & Giacinto Micucci & Marcello Pagnini, 2012. "Mapping local productivity advantages in Italy: industrial districts, cities or both?," Temi di discussione (Economic working papers) 850, Bank of Italy, Economic Research and International Relations Area.
  21. Massimo Del Gatto & Gianmarco I. P. Ottaviano & Marcello Pagnini, 2008. "Openness To Trade And Industry Cost Dispersion: Evidence From A Panel Of Italian Firms," Journal of Regional Science, Wiley Blackwell, vol. 48(1), pages 97-129.
  22. Fujita, Masahisa & Ogawa, Hideaki, 1982. "Multiple equilibria and structural transition of non-monocentric urban configurations," Regional Science and Urban Economics, Elsevier, vol. 12(2), pages 161-196, May.
  23. Melo, Patricia C. & Graham, Daniel J. & Noland, Robert B., 2009. "A meta-analysis of estimates of urban agglomeration economies," Regional Science and Urban Economics, Elsevier, vol. 39(3), pages 332-342, May.
  24. James Levinsohn & Amil Petrin, 2003. "Estimating Production Functions Using Inputs to Control for Unobservables," Review of Economic Studies, Oxford University Press, vol. 70(2), pages 317-341.
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