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

José Pontes and Patricia Melo

No 2018/23, Working Papers REM from ISEG - Lisbon School of Economics and Management, REM, Universidade de Lisboa

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.

Keywords: Labour Productivity; Population Density; Economic Development; Country Size (search for similar items in EconPapers)
JEL-codes: O11 O14 O15 R11 R12 (search for similar items in EconPapers)
Date: 2018-01
New Economics Papers: this item is included in nep-eff, nep-geo, nep-gro and nep-ure
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Persistent link: https://EconPapers.repec.org/RePEc:ise:remwps:wp0232018

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