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Estimating Agglomeration Economies With History, Geology, And Worker Effects

  • Pierre-Philippe Combes

    ()

    (GREQAM - Groupement de Recherche en Économie Quantitative d'Aix-Marseille - Université Paul Cézanne - Aix-Marseille 3 - Université de la Méditerranée - Aix-Marseille 2 - EHESS - École des hautes études en sciences sociales - CNRS - AMU - Aix-Marseille Université)

  • Gilles Duranton

    ()

    (Department of Economics - University of Toronto)

  • Laurent Gobillon

    ()

    (INED - Institut national d'études démographiques)

  • Sébastien Roux

    ()

    (CREST - Centre de Recherche en Économie et Statistique - INSEE - École Nationale de la Statistique et de l'Administration Économique)

Does productivity increase with density? We revisit the issue usingFrench wage and TFP data. To deal with the ‘endogenous quantity of labour' bias (i.e., urban agglomeration is consequence of high local productivity rather than a cause), we take an instrumental variable approach and introduce a new set of geological instruments in addition to standard historical instruments. To dealwith the ‘endogenous quality of labour' bias (i.e., cities attract skilled workers so that the effects of skills and urban agglomeration are confounded), we take a worker fixed-effect approach with wage data. We find modest evidence about theendogenous quantity of labour bias and both sets of instruments give a similar answer. We find that the endogenous quality of labour bias is quantitatively more important.

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Handle: RePEc:hal:wpaper:halshs-00347451
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