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Does Country Size Affect the Relationship between Population Density and Labour Productivity? Theory and Evidence for Europe

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  • José Pedro Pontes
  • Patrícia Melo

Abstract

The empirical literature on the relationship between labour productivity and urbanisation economies has considered the presence of variable returns to density, but it has not investigated the existence of a heterogeneous relationship according to country size. This paper proposes a theoretical model which can explain why the relationship between regional labour productivity and population density may differ in strength between small and large countries. To test the proposed theory, we carry out an empirical regression analysis using NUTS2-level data on GDP per capita and population density for the EU28 countries. The results from the empirical analysis corroborate the theoretical model and indicate the relationship is linear and stronger for regions in small countries compared to large countries.

Suggested Citation

  • José Pedro Pontes & Patrícia Melo, 2018. "Does Country Size Affect the Relationship between Population Density and Labour Productivity? Theory and Evidence for Europe," Working Papers REM 2018/23, ISEG - Lisbon School of Economics and Management, REM, Universidade de Lisboa.
  • Handle: RePEc:ise:remwps:wp0232018
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    File URL: https://rem.rc.iseg.ulisboa.pt/wps/pdf/REM_WP_023_2018.pdf
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    More about this item

    Keywords

    Labour Productivity; Population Density; Economic Development; Country Size;
    All these keywords.

    JEL classification:

    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
    • O14 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Industrialization; Manufacturing and Service Industries; Choice of Technology
    • O15 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Economic Development: Human Resources; Human Development; Income Distribution; Migration
    • R11 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Regional Economic Activity: Growth, Development, Environmental Issues, and Changes
    • R12 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Size and Spatial Distributions of Regional Economic Activity; Interregional Trade (economic geography)

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