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Geography, Productivity and Trade: Does Selection Explain Why Some Locations Are More Productive than Others?

  • Antonio Accetturo

    (Bank of Italy, Italy)

  • Valter Di Giacinto

    (Bank of Italy, Italy)

  • Giacinto Micucci

    (Bank of Italy, Italy)

  • Marcello Pagnini

    (Bank of Italy, Italy)

Two main hypotheses are usually put forward to explain the productivity advantages of larger cities: agglomeration economies and firm selection. Combes et al. (2012) propose an empirical approach to disentangle these two effects and fail to find any impact of selection on local productivity differences. We theoretically show that selection effects do emerge when asymmetric trade and entry costs and different spatial scale at which agglomeration and selection may work are properly taken into account. The empirical findings confirm that agglomeration effects play a major role. However, they also show a substantial increase in the importance of the selection effect when asymmetric trade costs and a different spatial scale are taken into account.

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Paper provided by The Rimini Centre for Economic Analysis in its series Working Paper Series with number 24_13.

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Date of creation: May 2013
Date of revision:
Handle: RePEc:rim:rimwps:24_13
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  1. ARIMOTO Yutaka & NAKAJIMA Kentaro & OKAZAKI Tetsuji, 2010. "Agglomeration or Selection? The Case of the Japanese Silk-reeling Industry, 1909-1916," Discussion papers 10003, Research Institute of Economy, Trade and Industry (RIETI).
  2. Chad Syverson, 2004. "Product Substitutability and Productivity Dispersion," The Review of Economics and Statistics, MIT Press, vol. 86(2), pages 534-550, May.
  3. Wagner, Alfred, 1891. "Marshall's Principles of Economics," History of Economic Thought Articles, McMaster University Archive for the History of Economic Thought, vol. 5, pages 319-338.
  4. Valter Di Giacinto & Matteo Gomellini & Giacinto Micucci & Marcello Pagnini, 2014. "Mapping local productivity advantages in Italy: industrial districts, cities or both?," Journal of Economic Geography, Oxford University Press, vol. 14(2), pages 365-394.
  5. Diego Puga, 2009. "The magnitude and causes of agglomeration economies," Working Papers 2009-09, Instituto Madrileño de Estudios Avanzados (IMDEA) Ciencias Sociales.
  6. Andrew B. Bernard & Stephen Redding & Peter K. Schott, 2004. "Comparative advantage and heterogeneous firms," LSE Research Online Documents on Economics 3700, London School of Economics and Political Science, LSE Library.
  7. Richard Baldwin & Toshihiro Okubo, 2005. "Heterogeneous Firms, Agglomeration and Economic Geography: Spatial Selection and Sorting," NBER Working Papers 11650, National Bureau of Economic Research, Inc.
  8. Toshihiro Okubo & Pierre M. Picard & Jacques-François Thisse, 2008. "The spatial selection of heterogeneous firms," Discussion Paper Series 229, Research Institute for Economics & Business Administration, Kobe University.
  9. James Levinsohn & Amil Petrin, 2003. "Estimating Production Functions Using Inputs to Control for Unobservables," Review of Economic Studies, Oxford University Press, vol. 70(2), pages 317-341.
  10. Kristian Behrens & Gilles Duranton & Fr�d�ric Robert-Nicoud, 2014. "Productive Cities: Sorting, Selection, and Agglomeration," Journal of Political Economy, University of Chicago Press, vol. 122(3), pages 507 - 553.
  11. Combes, Pierre-Philippe & Duranton, Gilles & Gobillon, Laurent & Puga, Diego & Roux, Sébastien, 2012. "The Productivity Advantages of Large Cities: Distinguishing Agglomeration from Firm Selection," IZA Discussion Papers 6502, Institute for the Study of Labor (IZA).
  12. Finicelli, Andrea & Pagano, Patrizio & Sbracia, Massimo, 2009. "Ricardian selection," MPRA Paper 16950, University Library of Munich, Germany.
  13. Ottaviano, Gianmarco & Thisse, Jacques-François, 1998. "Agglomeration and Trade Revisited," CEPR Discussion Papers 1903, C.E.P.R. Discussion Papers.
  14. Del Gatto, Massimo & Ottaviano, Gianmarco & Pagnini, Marcello, 2007. "Openness to Trade and Industry Cost Dispersion: Evidence from a Panel of Italian Firms," CEPR Discussion Papers 6336, C.E.P.R. Discussion Papers.
  15. Antonio Ciccone & Robert E. Hall, 1993. "Productivity and the Density of Economic Activity," NBER Working Papers 4313, National Bureau of Economic Research, Inc.
  16. repec:oup:restud:v:75:y:2008:i:1:p:295-316 is not listed on IDEAS
  17. Volker Nocke, 2003. "A Gap for Me: Entrepreneurs and Entry," PIER Working Paper Archive 05-026, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania, revised 29 Sep 2005.
  18. Alla Lileeva & Daniel Trefler, 2010. "Improved Access to Foreign Markets Raises Plant-level Productivity…For Some Plants," The Quarterly Journal of Economics, Oxford University Press, vol. 125(3), pages 1051-1099.
  19. Melo, Patricia C. & Graham, Daniel J. & Noland, Robert B., 2009. "A meta-analysis of estimates of urban agglomeration economies," Regional Science and Urban Economics, Elsevier, vol. 39(3), pages 332-342, May.
  20. Chad Syverson, 2004. "Market Structure and Productivity: A Concrete Example," Journal of Political Economy, University of Chicago Press, vol. 112(6), pages 1181-1222, December.
  21. Marc J. Melitz & Gianmarco I.P. Ottaviano, 2005. "Market Size, Trade, and Productivity," Development Working Papers 201, Centro Studi Luca d\'Agliano, University of Milano.
  22. Rosenthal, Stuart S. & Strange, William C., 2008. "The attenuation of human capital spillovers," Journal of Urban Economics, Elsevier, vol. 64(2), pages 373-389, September.
  23. Robert E. Lucas & Esteban Rossi-Hansberg, 2002. "On the Internal Structure of Cities," Econometrica, Econometric Society, vol. 70(4), pages 1445-1476, July.
  24. Fujita, Masahisa & Ogawa, Hideaki, 1982. "Multiple equilibria and structural transition of non-monocentric urban configurations," Regional Science and Urban Economics, Elsevier, vol. 12(2), pages 161-196, May.
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