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Agglomeration economies with consistent productivity estimates

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  • Ehrl, Philipp

Abstract

This paper investigates the relative impact of microeconomic agglomeration mechanisms on plant's total factor productivity (TFP) using German establishment and employment-level data. Contrasting different strategies for estimating TFP from plant-level production functions reveals that unobserved output prices bias true productivity and lead to underestimated agglomeration economies. With the corrected TFP measure, the largest impact is found for labor market pooling, which is captured by the correlation of the occupational composition between one county-industry and the rest of the county. This main result is robust, even when the spatial units are resized from counties to larger labor market regions. Input linkages appear to be relevant only at this larger regional scale. Overall, agglomeration economies differ substantially across industries. Only for a subset of industries, some positive evidence is detected for knowledge spillovers.

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  • Ehrl, Philipp, 2013. "Agglomeration economies with consistent productivity estimates," Regional Science and Urban Economics, Elsevier, vol. 43(5), pages 751-763.
    • Handle: RePEc:eee:regeco:v:43:y:2013:i:5:p:751-763
    DOI: 10.1016/j.regsciurbeco.2013.06.002
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    More about this item

    Keywords

    Agglomeration economies; Modifiable areal unit problem; TFP estimation; Price bias;
    All these keywords.

    JEL classification:

    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • R11 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Regional Economic Activity: Growth, Development, Environmental Issues, and Changes
    • R30 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - General

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