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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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  4. PierrePhilippe Combes & Gilles Duranton & Laurent Gobillon & Diego Puga & Sébastien Roux, 2009. "The Productivity Advantages of Large Cities: Distinguishing Agglomeration from Firm Selection," SERC Discussion Papers 0027, Spatial Economics Research Centre, LSE.
  5. Toshihiro Okubo & Pierre M. Picard & Jacques-François Thisse, 2008. "The spatial selection of heterogeneous firms," Discussion Paper Series 229, Research Institute for Economics & Business Administration, Kobe University.
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  7. Kristian Behrens & Gilles Duranton & Fr�d�ric Robert-Nicoud, 2014. "Productive Cities: Sorting, Selection, and Agglomeration," Journal of Political Economy, University of Chicago Press, vol. 122(3), pages 507 - 553.
  8. Alla Lileeva & Daniel Trefler, 2010. "Improved Access to Foreign Markets Raises Plant-Level Productivity... for Some Plants," The Quarterly Journal of Economics, MIT Press, vol. 125(3), pages 1051-1099, August.
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  17. Richard E. Baldwin & Toshihiro Okubo, 2006. "Heterogeneous firms, agglomeration and economic geography: spatial selection and sorting," Journal of Economic Geography, Oxford University Press, vol. 6(3), pages 323-346, June.
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  20. Massimo Del Gatto & Gianmarco I. P. Ottaviano & Marcello Pagnini, 2008. "Openness To Trade And Industry Cost Dispersion: Evidence From A Panel Of Italian Firms," Journal of Regional Science, Wiley Blackwell, vol. 48(1), pages 97-129.
  21. James Levinsohn & Amil Petrin, 2003. "Estimating Production Functions Using Inputs to Control for Unobservables," Review of Economic Studies, Oxford University Press, vol. 70(2), pages 317-341.
  22. Diego Puga, 2009. "The magnitude and causes of agglomeration economies," Working Papers 2009-09, Instituto Madrileño de Estudios Avanzados (IMDEA) Ciencias Sociales.
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