The Productivity Advantages of Large Cities: Distinguishing Agglomeration from Firm Selection

Pierre-Philippe Combes, Gilles Duranton, Laurent Gobillon, Diego Puga and Sébastien Roux (roux@ensae.fr)

No 6502, IZA Discussion Papers from Institute of Labor Economics (IZA)

Abstract: Firms are more productive on average in larger cities. Two main explanations have been offered: firm selection (larger cities toughen competition, allowing only the most productive to survive) and agglomeration economies (larger cities promote interactions that increase productivity), possibly reinforced by localised natural advantage. 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. Using this prediction, French establishment level data, and a new quantile approach, we show that firm selection cannot explain spatial productivity differences. This result holds across sectors, city size thresholds, establishment samples, and area definitions.

Keywords: agglomeration; firm selection; productivity; cities (search for similar items in EconPapers)
JEL-codes: C52 D24 R12 (search for similar items in EconPapers)
Pages: 45 pages
Date: 2012-04
New Economics Papers: this item is included in nep-eff, nep-geo and nep-ure
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (502)

Published - published in: Econometrica, 2012, 80 (6), 2543-2594

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Related works:
Journal Article: The Productivity Advantages of Large Cities: Distinguishing Agglomeration From Firm Selection (2012)
Working Paper: The productivity advantages of large cities: distingushing agglomeration from firm selection (2012)
Working Paper: The productivity advantages of large cities: distingushing agglomeration from firm selection (2012)
Working Paper: The productivity advantages of large cities: Distinguishing agglomeration from firm selection (2010)
Working Paper: The Productivity Advantages of Large Cities: Distinguishing Agglomeration from Firm Selection (2009)
Working Paper: The productivity advantages of large cities: Distinguishing agglomeration from firm selection (2009)
Working Paper: The Productivity Advantages of Large Cities: Distinguishing Agglomeration from Firm Selection (2009)
Working Paper: The productivity advantages of large cities: Distinguishing agglomeration from firm selection (2009)
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