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

Author Info

Listed author(s):
  • Pierre‐Philippe Combes
  • Gilles Duranton
  • Laurent Gobillon
  • Diego Puga
  • Sébastien Roux

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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File URL: http://hdl.handle.net/10.3982/ECTA8442
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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
DOI: ECTA8442
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Find related papers by JEL classification:
  • C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection
  • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
  • R12 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Size and Spatial Distributions of Regional Economic Activity; Interregional Trade (economic geography)

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