A different look at aglomeration effects in Spain

This paper explores the relationship between productivity and labour density at the municipality level for the Spanish economy and year 2001. Previous results on the mentioned relationship are confirrmed. Whilst agglomeration e¤ects at NUTs-3 level were important along the 1960s and 1970s, they seem to have disappeared along the second half of the 1980s. We show that agglomeration e¤ects are still present, nonetheless when analysed at a higher degree of geographical disaggregation. Recent amendments in regional governance and the creation of Comunidades Autónomas implying a higher degree of political and economic decentralization along the 1980s may have resulted in this change in agglomeration patterns. Endogeneity problems associated to estimation of productivity elasticities with respect to labour densities are taken into account by means of instrumental variable (IV) regressions. To this respect, elevation turns out to be a valid and attractive instrument for the agglomeration variable. Also we test if proximity to labour dense areas may also have a positive efect on the productivity level of a given municipality. The results show that agglomeration forces mainly operate within NUTs-3 regions the oldest administrative regional division of Spain.