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

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

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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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 7191.

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Date of creation: Mar 2009
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Handle: RePEc:cpr:ceprdp:7191
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