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

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Author Info
Pierre-Philippe Combes
Gilles Duranton
Diego Puga
Sebastien Roux

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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 University of Toronto, Department of Economics in its series Working Papers with number tecipa-353.

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Length: 46 pages
Date of creation: 05 Mar 2009
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Handle: RePEc:tor:tecipa:tecipa-353

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

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

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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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