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Estimating Agglomeration Economies with History, Geology, and Worker Effects

In: Agglomeration Economics

  • Pierre-Philippe Combes
  • Gilles Duranton
  • Laurent Gobillon
  • Sébastien Roux

Does productivity increase with density? We revisit the issue usingFrench wage and TFP data. To deal with the ‘endogenous quantity of labour' bias (i.e., urban agglomeration is consequence of high local productivity rather than a cause), we take an instrumental variable approach and introduce a new set of geological instruments in addition to standard historical instruments. To dealwith the ‘endogenous quality of labour' bias (i.e., cities attract skilled workers so that the effects of skills and urban agglomeration are confounded), we take a worker fixed-effect approach with wage data. We find modest evidence about theendogenous quantity of labour bias and both sets of instruments give a similar answer. We find that the endogenous quality of labour bias is quantitatively more important.

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This chapter was published in:
  • Edward L. Glaeser, 2010. "Agglomeration Economics," NBER Books, National Bureau of Economic Research, Inc, number glae08-1.
  • This item is provided by National Bureau of Economic Research, Inc in its series NBER Chapters with number 7978.
    Handle: RePEc:nbr:nberch:7978
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