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

  • Pierre Philippe Combes

    ()

    (University of AixMarseille and CEPR)

  • Gilles Duranton

    ()

    (University of Toronto and CEPR)

  • Laurent Gobillon

    ()

    (Institut National d’Etudes Démographiques, PSEINRA, and CREST)

  • Diego Puga

    ()

    (IMDEA Social Sciences Institute)

  • Sébastien Roux

    ()

    (CREST INSEE)

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 tractable 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 Instituto Madrileño de Estudios Avanzados (IMDEA) Ciencias Sociales in its series Working Papers with number 2009-02.

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Date of creation: 20 Feb 2009
Date of revision: 30 Nov 2010
Publication status: Forthcoming in Econometrica
Handle: RePEc:imd:wpaper:wp2009-02
Note: This paper is included in the IMDEA Social Sciences Working Paper Series through the PROCIUDAD-CM and the Bank of Spain Excellence Programmes
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