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The Productivity Advantages of Large Cities : Distinguishing Agglomeration from Firm Selection

  • Pierre-Philippe COMBES

    (Crest)

  • Gilles DURANTON

    (Crest)

  • Laurent GOBILLON

    (Crest)

  • Diego PUGA

    (Crest)

  • Sébastien ROUX

    (Crest)

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

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Paper provided by Centre de Recherche en Economie et Statistique in its series Working Papers with number 2009-08.

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Length: 46
Date of creation: 2009
Handle: RePEc:crs:wpaper:2009-08
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