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Productivity and the Density of Economic Activity

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  • Antonio Ciccone
  • Robert E. Hall

Abstract

Two different models - one based on local geographical externalities and the other on the variety of only locally available intermediate services - are shown to give rise to a simple, estimable relation between employment density and productivity. Using data on gross state output for the U.S., we find that agglomeration more than offsets congestion effects in denser areas. While our estimate of the elasticity of productivity with respect to density is small, it explains more than 50% of the observed state productivity differences, given the large differences in density.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 4313.

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Date of creation: Apr 1993
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Publication status: published as American Economic Review, vol. 86, no. 1, pp. 54-70, (March 1996).
Handle: RePEc:nbr:nberwo:4313

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  1. Moomaw, Ronald L., 1985. "Firm location and city size: Reduced productivity advantages as a factor in the decline of manufacturing in urban areas," Journal of Urban Economics, Elsevier, vol. 17(1), pages 73-89, January.
  2. Glaeser, Edward L & Hedi D. Kallal & Jose A. Scheinkman & Andrei Shleifer, 1992. "Growth in Cities," Journal of Political Economy, University of Chicago Press, vol. 100(6), pages 1126-52, December.
    • Edward L. Glaeser & Hedi D. Kallal & Jose A. Scheinkman & Andrei Shleifer, 1991. "Growth in Cities," NBER Working Papers 3787, National Bureau of Economic Research, Inc.
    • Glaeser, Edward Ludwig & Kallal, Hedi D. & Scheinkman, Jose A. & Shleifer, Andrei, 1992. "Growth in Cities," Scholarly Articles 3451309, Harvard University Department of Economics.
  3. Gerald A. Carlino & Richard Voith, 1989. "Accounting for differences in aggregate state productivity," Working Papers 90-1, Federal Reserve Bank of Philadelphia.
  4. Abdel-Rahman, H. M., 1988. "Product differentiation, monopolistic competition and city size," Regional Science and Urban Economics, Elsevier, vol. 18(1), pages 69-86, February.
  5. Garcia-Mila, Teresa & McGuire, Therese J & Porter, Robert H, 1996. "The Effect of Public Capital in State-Level Production Functions Reconsidered," The Review of Economics and Statistics, MIT Press, vol. 78(1), pages 177-80, February.
  6. Antonio Ciccone & Robert E. Hall, 1993. "Productivity and the Density of Economic Activity," NBER Working Papers 4313, National Bureau of Economic Research, Inc.
  7. Steven J. Davis, 1992. "Cross-Country Patterns of Change in Relative Wages," NBER Working Papers 4085, National Bureau of Economic Research, Inc.
  8. Henderson, Vernon, 1997. "Externalities and Industrial Development," Journal of Urban Economics, Elsevier, vol. 42(3), pages 449-470, November.
  9. Edward L. Glaeser & David C. Mare, 1994. "Cities and Skills," NBER Working Papers 4728, National Bureau of Economic Research, Inc.
  10. Spence, Michael, 1976. "Product Selection, Fixed Costs, and Monopolistic Competition," Review of Economic Studies, Wiley Blackwell, vol. 43(2), pages 217-35, June.
  11. Henderson, J. Vernon, 1986. "Efficiency of resource usage and city size," Journal of Urban Economics, Elsevier, vol. 19(1), pages 47-70, January.
  12. J.V. Henderson, 1972. "The Sizes and Types of Cities," Working Papers 75, Queen's University, Department of Economics.
  13. Sveikauskas, Leo A, 1975. "The Productivity of Cities," The Quarterly Journal of Economics, MIT Press, vol. 89(3), pages 393-413, August.
  14. Rivera-Batiz, Francisco L., 1988. "Increasing returns, monopolistic competition, and agglomeration economies in consumption and production," Regional Science and Urban Economics, Elsevier, vol. 18(1), pages 125-153, February.
  15. Dixit, Avinash K & Stiglitz, Joseph E, 1977. "Monopolistic Competition and Optimum Product Diversity," American Economic Review, American Economic Association, vol. 67(3), pages 297-308, June.
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