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The Role of Urban Agglomerations for Economic and Productivity Growth


  • Rudiger Ahrend


  • Alexander Lembcke


  • Abel Schumann



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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    References listed on IDEAS

    1. Jorge De La Roca & Diego Puga, 2017. "Learning by Working in Big Cities," Review of Economic Studies, Oxford University Press, vol. 84(1), pages 106-142.
    2. Andini, Monica & de Blasio, Guido & Duranton, Gilles & Strange, William C., 2013. "Marshallian labour market pooling: Evidence from Italy," Regional Science and Urban Economics, Elsevier, vol. 43(6), pages 1008-1022.
    3. Pierre-Philippe Combes & Gilles Duranton & Laurent Gobillon, 2011. "The identification of agglomeration economies," Journal of Economic Geography, Oxford University Press, vol. 11(2), pages 253-266, March.
    4. Rudiger Ahrend & Alexander C. Lembcke, 2016. "Does It Pay to Live in Big(ger) Cities?: The Role of Agglomeration Benefits, Local Amenities, and Costs of Living," OECD Regional Development Working Papers 2016/9, OECD Publishing.
    5. Rudiger Ahrend & Emily Farchy & Ioannis Kaplanis & Alexander C. Lembcke, 2014. "What Makes Cities More Productive? Evidence on the Role of Urban Governance from Five OECD Countries," OECD Regional Development Working Papers 2014/5, OECD Publishing.
    6. Ellison, Glenn & Glaeser, Edward L, 1997. "Geographic Concentration in U.S. Manufacturing Industries: A Dartboard Approach," Journal of Political Economy, University of Chicago Press, vol. 105(5), pages 889-927, October.
    7. Dora L. Costa & Matthew E. Kahn, 2000. "Power Couples: Changes in the Locational Choice of the College Educated, 1940–1990," The Quarterly Journal of Economics, Oxford University Press, vol. 115(4), pages 1287-1315.
    8. Combes, Pierre-Philippe & Duranton, Gilles & Gobillon, Laurent, 2008. "Spatial wage disparities: Sorting matters!," Journal of Urban Economics, Elsevier, vol. 63(2), pages 723-742, March.
    9. Evert Meijers & Martijn Burger & Roberto Camagni & Roberta Capello & Andrea Caragliu, 2016. "Static vs. dynamic agglomeration economies. Spatial context and structural evolution behind urban growth," Papers in Regional Science, Wiley Blackwell, vol. 95(1), pages 133-158, March.
    10. Roberto Camagni & Roberta Capello & Andrea Caragliu, 2015. "The Rise of Second-Rank Cities: What Role for Agglomeration Economies?," European Planning Studies, Taylor & Francis Journals, vol. 23(6), pages 1069-1089, June.
    11. Andersson, Fredrik & Burgess, Simon & Lane, Julia I., 2007. "Cities, matching and the productivity gains of agglomeration," Journal of Urban Economics, Elsevier, vol. 61(1), pages 112-128, January.
    12. Rudiger Ahrend & Abel Schumann, 2014. "Does Regional Economic Growth Depend on Proximity to Urban Centres?," OECD Regional Development Working Papers 2014/7, OECD Publishing.
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    Blog mentions

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      by Steve Cecchetti and Kim Schoenholtz in Money, Banking and Financial Markets on 2019-01-28 14:10:43

    More about this item


    Productivity; OECD; Policies; Global Productivity; Total Factor Productivity; Wages; academics; urban; population;

    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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