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The Productivity Advantages of Large Cities: Distinguishing Agglomeration From Firm Selection

  • Pierre‐Philippe Combes
  • Gilles Duranton
  • Laurent Gobillon
  • Diego Puga
  • Sébastien Roux

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

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Article provided by Econometric Society in its journal Econometrica.

Volume (Year): 80 (2012)
Issue (Month): 6 (November)
Pages: 2543-2594

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Handle: RePEc:ecm:emetrp:v:80:y:2012:i:6:p:2543-2594
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