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Geography, productivity and trade: does selection explain why some locations are more productive than others?

  • Antonio Accetturo


    (Bank of Italy)

  • Valter Di Giacinto


    (Bank of Italy)

  • Giacinto Micucci


    (Bank of Italy)

  • Marcello Pagnini


    (Bank of Italy)

Two main hypotheses are usually put forward to explain the productivity advantages of larger cities: agglomeration economies and firm selection. Combes et al. (2012) propose an empirical approach to disentangle these two effects and fail to find any impact of selection on local productivity differences. We theoretically show that selection effects do emerge when asymmetric trade and entry costs and different spatial scale at which agglomeration and selection may work are properly taken into account. The empirical findings confirm that agglomeration effects play a major role. However, they also show a substantial increase in the importance of the selection effect when asymmetric trade costs and a different spatial scale are taken into account.

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Paper provided by Bank of Italy, Economic Research and International Relations Area in its series Temi di discussione (Economic working papers) with number 910.

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Date of creation: Apr 2013
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Handle: RePEc:bdi:wptemi:td_910_13
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