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

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  • 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)

Abstract

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.

Suggested Citation

  • Pierre Philippe Combes & Gilles Duranton & Laurent Gobillon & Diego Puga & Sébastien Roux, 2009. "The productivity advantages of large cities: Distinguishing agglomeration from firm selection," Working Papers 2009-02, Instituto Madrileño de Estudios Avanzados (IMDEA) Ciencias Sociales, revised 30 Nov 2010.
  • 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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    More about this item

    Keywords

    agglomeration; firm selection; productivity; cities;

    JEL classification:

    • C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection
    • R12 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Size and Spatial Distributions of Regional Economic Activity; Interregional Trade (economic geography)
    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity

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