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The productivity advantages of large cities: Distinguishing agglomeration from firm selection

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Author Info
Combes, Pierre-Philippe
Duranton, Gilles
Gobillon, Laurent
Puga, Diego
Roux, Sébastien

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Abstract

Firms are more productive on average in larger cities. Two explanations have been offered: agglomeration economies (larger cities promote interactions that increase productivity) and firm selection (larger cities toughen competition allowing only the most productive to survive). To distinguish between them, we nest a generalised version of a seminal firm selection model and a standard model of agglomeration. Stronger selection in larger cities left-truncates the productivity distribution whereas stronger agglomeration right-shifts and dilates the distribution. We assess the relative importance of agglomeration and firm selection using French establishment-level data and a new quantile approach. Spatial productivity differences in France are mostly explained by agglomeration.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 7191.

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Date of creation: Mar 2009
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Handle: RePEc:cpr:ceprdp:7191

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Related research
Keywords: agglomeration; cities; firm selection; productivity;

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Find related papers by JEL classification:
C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation and Testing
D24 - Microeconomics - - Production and Organizations - - - Production; Capital and Total Factor Productivity; Capacity
R12 - Urban, Rural, and Regional Economics - - General Regional Economics - - - Size and Spatial Distributions of Regional Economic Activity; Interregional Trade (economic geography)

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  1. Del Gatto, Massimo & Ottaviano, Gianmarco Ireo Paolo & Pagnini, Marcello, 2007. "Openness to Trade and Industry Cost Dispersion: Evidence from a Panel of Italian Firms," CEPR Discussion Papers 6336, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
    Other versions:
  2. Kristian Behrens & Frédéric Robert-Nicoud, 2009. "Survival of the Fittest in Cities: Agglomeration, Polarization, and Income Inequality," Cahiers de recherche 0919, CIRPEE. [Downloadable!]
  3. Laurent Gobillon & Dominique Meurs & Sébastien Roux, 2009. "Estimating gender differences in access to jobs: females trapped at the bottom of the ladder," PSE Working Papers 2009-36, PSE (Ecole normale supérieure). [Downloadable!]
  4. Acharya, Ram C. & Keller, Wolfgang, 2008. "Estimating the Productivity Selection and Technology Spillover Effects of Imports," CEPR Discussion Papers 6860, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  5. Behrens, Kristian & Robert-Nicoud, Frédéric, 2008. "Survival of the Fittest in Cities: Agglomeration, Selection, and Polarisation," CEPR Discussion Papers 7018, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
    Other versions:
  6. Combes, Pierre-Philippe & Duranton, Gilles & Gobillon, Laurent & Roux, Sébastien, 2008. "Estimating Agglomeration Economies with History, Geology, and Worker Effects," CEPR Discussion Papers 6728, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
    Other versions:
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This page was last updated on 2009-10-29.

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