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The productivity advantages of large cities: Distinguishing agglomeration from firm selection

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  • Duranton, Gilles
  • Combes, Pierre-Philippe
  • Puga, Diego
  • Gobillon, Laurent
  • Roux, Sébastien

Abstract

Firms are more productive on average in larger cities. Two explanations have been offered: agglomeration economies (larger cities promote interactions that increase productivity) and firm selection (larger cities toughen competition allowing only the most productive to survive). To distinguish between them, we nest a generalised version of a seminal firm selection model and a standard model of agglomeration. Stronger selection in larger cities left-truncates the productivity distribution whereas stronger agglomeration right-shifts and dilates the distribution. We assess the relative importance of agglomeration and firm selection using French establishment-level data and a new quantile approach. Spatial productivity differences in France are mostly explained by agglomeration.

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  • Duranton, Gilles & Combes, Pierre-Philippe & Puga, Diego & Gobillon, Laurent & Roux, Sébastien, 2009. "The productivity advantages of large cities: Distinguishing agglomeration from firm selection," CEPR Discussion Papers 7191, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:7191
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    More about this item

    Keywords

    Agglomeration; Cities; Firm selection; Productivity;
    All these keywords.

    JEL classification:

    • C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection
    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • R12 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Size and Spatial Distributions of Regional Economic Activity; Interregional Trade (economic geography)

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