Location and Productivity of Knowledge- and Information-intensive Business Services

Knowledge-intensive business services (KIBS), which produce skill-intensive services used as intermediate inputs, are becoming important for the economic growth and international competitiveness of advanced countries. This study, using establishment- and company-level micro data, analyzes the productivity of knowledge- and information-intensive services in Japan, including information services, publishers, and design services. We focus on the effect of urban density on the productivity of these services. Our estimations reveal that doubling the employment density of municipalities is associated with around 5% higher labor productivity of service providers, which is larger than that found in the manufacturing industry. However, quantitatively, the economies of density vary for individual services, suggesting that the services to be promoted by small and medium cities differ from those for which large metropolitan cities such as Tokyo and Osaka have strong comparative advantages.