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The Role of Urban Agglomerations for Economic and Productivity Growth

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Listed:
  • Rudiger Ahrend
  • Alexander Lembcke
  • Abel Schumann

Abstract

This article discusses how urban agglomerations – cities – affect economic productivity. It uses an internationally harmonized definition of cities that aims to capture the true extent of an urban agglomeration and is not limited by administrative city boundaries. It shows that labour productivity increases with city size. Among OECD metropolitan areas, agglomerations with more than 500,000 inhabitants, a 1 per cent population increase is associated with a 0.12 per cent increase in average labour productivity. Partly, this is explained by “sorting” as more productive workers tend to live in bigger cities. But bigger cities provide additional “agglomeration economies” to those working in them. Comparable workers are 0.02-0.05 per cent more productive in cities with a 1 per cent larger population. These differences compound to significant differentials, e.g. a similar worker in Madrid (6 million inhabitants) is, on average, nearly 15 per cent more productive than a worker in Toledo (120,000 inhabitants). Furthermore, the paper also shows that cities affect economic performance beyond their boundaries. Since 1995, per capita GDP growth in regions within 90 minutes driving of a large urban agglomeration has been approximately 0.4 percentage points higher than in those with no large urban agglomeration within 300 minutes of driving.

Suggested Citation

  • Rudiger Ahrend & Alexander Lembcke & Abel Schumann, 2017. "The Role of Urban Agglomerations for Economic and Productivity Growth," International Productivity Monitor, Centre for the Study of Living Standards, vol. 32, pages 161-179, Spring.
  • Handle: RePEc:sls:ipmsls:v:32:y:2017:9
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    File URL: http://www.csls.ca/ipm/32/Ahrend_Lembcke_Shumann.pdf
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    References listed on IDEAS

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    1. China: Mao Strikes Back
      by Steve Cecchetti and Kim Schoenholtz in Money, Banking and Financial Markets on 2019-01-28 14:10:43

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    Cited by:

    1. Alexandra Tsvetkova & Rudiger Ahrend & Joaquim Oliveira Martins & Alexander C. Lembcke & Polina Knutsson & Dylan Jong & Nikolaos Terzidis, 2020. "The spatial dimension of productivity: Connecting the dots across industries, firms and places," OECD Regional Development Working Papers 2020/01, OECD Publishing.

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    More about this item

    Keywords

    Productivity; OECD; Policies; Global Productivity; Total Factor Productivity; Wages; academics; urban; population;
    All these keywords.

    JEL classification:

    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence
    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • O18 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Urban, Rural, Regional, and Transportation Analysis; Housing; Infrastructure
    • P42 - Economic Systems - - Other Economic Systems - - - Productive Enterprises; Factor and Product Markets; Prices

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