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Agglomeration elasticities and firm heterogeneity

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  • Maré, David C.
  • Graham, Daniel J.

Abstract

This paper examines three key issues encountered when estimating the relationship between agglomeration and multi factor productivity (‘agglomeration elasticities’): the sorting of heterogeneous firms, the convexity of agglomeration effects, and the challenges of identifying the impact of persistent spatial differences in effective density. We use a firm-level panel containing production data together with detailed information on the geographic location of employment, covering a high proportion of the New Zealand economy. We are able to control for heterogeneity along firm, region, and industry dimensions, and to estimate separate agglomeration elasticities across industries and regions. Sorting leads to upward biased elasticity estimates but using firm fixed effects can lead to downward bias due to the highly persistent nature of agglomeration variables. Our preferred estimates control for sorting across regions and industries. Overall, we find a positive agglomeration elasticity of 0.066. Within industries and, to a lesser extent within regions, there is pronounced variation in the strength of agglomeration effects, and evidence of decreasing returns to agglomeration. High density areas attract firms that benefit most from agglomeration.

Suggested Citation

  • Maré, David C. & Graham, Daniel J., 2013. "Agglomeration elasticities and firm heterogeneity," Journal of Urban Economics, Elsevier, vol. 75(C), pages 44-56.
  • Handle: RePEc:eee:juecon:v:75:y:2013:i:c:p:44-56
    DOI: 10.1016/j.jue.2012.12.002
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    Citations

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    Cited by:

    1. David C. Maré, 2016. "Urban Productivity Estimation with Heterogeneous Prices and Labour," Working Papers 16_21, Motu Economic and Public Policy Research.
    2. Iimi,Atsushi & Humphrey,Richard Martin & Melibaeva,Sevara, 2015. "Firm productivity and infrastructure costs in east Africa," Policy Research Working Paper Series 7278, The World Bank.
    3. MORIKAWA Masayuki, 2016. "Location and Productivity of Knowledge- and Information-intensive Business Services," Discussion papers 16067, Research Institute of Economy, Trade and Industry (RIETI).
    4. Richard Fabling & David C Maré, 2015. "Production function estimation using New Zealand’s Longitudinal Business Database," Working Papers 15_15, Motu Economic and Public Policy Research.
    5. Daniel Graham & Kurt Dender, 2011. "Estimating the agglomeration benefits of transport investments: some tests for stability," Transportation, Springer, vol. 38(3), pages 409-426, May.
    6. Iimi,Atsushi & Humphrey,Richard Martin & Melibaeva,Sevara, 2015. "Firms? locational choice and infrastructure development in Rwanda," Policy Research Working Paper Series 7279, The World Bank.
    7. David C. Maré & Dean R. Hyslop & Richard Fabling, 2017. "Firm productivity growth and skill," New Zealand Economic Papers, Taylor & Francis Journals, vol. 51(3), pages 302-326, September.
    8. World Bank, 2014. "Regional Economic Impact Analysis of High Speed Rail in China : Main Report," World Bank Other Operational Studies 19996, The World Bank.
    9. Békés, Gábor & Harasztosi, Péter, 2013. "Agglomeration premium and trading activity of firms," Regional Science and Urban Economics, Elsevier, vol. 43(1), pages 51-64.
    10. Arthur Grimes & Eyal Apatov & Larissa Lutchman & Anna Robinson, 2014. "Infrastructure’s Long-Lived Impact on Urban Development: Theory and Empirics," Working Papers 14_11, Motu Economic and Public Policy Research.
    11. Marco-Lajara, Bartolomé & Claver-Cortés, Enrique & Úbeda-García, Mercedes & Zaragoza-Sáez, Patrocinio del Carmen, 2016. "A dynamic analysis of the agglomeration and performance relationship," Journal of Business Research, Elsevier, vol. 69(5), pages 1874-1879.
    12. Eliasson, Jonas & Fosgerau, Mogens, 2017. "Cost-benefit analysis of transport improvements in the presence of spillovers, matching and an income tax," Working papers in Transport Economics 2017:3, CTS - Centre for Transport Studies Stockholm (KTH and VTI).
    13. KONDO Keisuke, 2017. "Urban Wage Premium Revisited: Evidence from Japanese matched employer-employee data," Discussion papers 17047, Research Institute of Economy, Trade and Industry (RIETI).
    14. repec:eee:retrec:v:66:y:2017:i:c:p:36-45 is not listed on IDEAS
    15. Iimi,Atsushi & Humphreys,Richard Martin & Melibaeva,Sevara, 2015. "Firms? locational choice and infrastructure development in Tanzania : instrumental variable spatial autoregressive model," Policy Research Working Paper Series 7305, The World Bank.
    16. Ying Jin & Richard Bullock & Wanli Fang, 2013. "Regional Impacts of High Speed Rail in China : Spatial Proximity and Productivity in an Emerging Economy," World Bank Other Operational Studies 19989, The World Bank.

    More about this item

    Keywords

    Agglomeration; Urban density; Productivity;

    JEL classification:

    • L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance
    • R12 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Size and Spatial Distributions of Regional Economic Activity; Interregional Trade (economic geography)
    • R3 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location
    • L2 - Industrial Organization - - Firm Objectives, Organization, and Behavior
    • R1 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics

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