Agglomeration economies and firm TFP: different effects across industries

Martin Gornig and Alexander Schiersch

VfS Annual Conference 2019 (Leipzig): 30 Years after the Fall of the Berlin Wall - Democracy and Market Economy from Verein für Socialpolitik / German Economic Association

Abstract: This paper analyzes the effect of agglomeration economies on firms' total factor productivity. We propose the use of a control function approach to overcome the econometric issue inherent to the two-stage approach commonly used in the literature. Estimations are conducted separately for four industry groups, defined by technological intensity, to allow for non-uniform effects of agglomeration economies on firms given their technological level. In addition, R&D is included to account for the firms' own efforts to foster productivity through creating and absorbing knowledge. Finally, radii as well as administrative boundaries are used for defining regions. The results confirm differences in the strength and even in the direction of agglomeration economies: While urban economies have the largest effect on TFP for firms in high-tech industries, they have no effect on TFP in low-tech industries. For firms in the latter industries, however, the variety of the local economic structure has an impact, while this is irrelevant for the TFP of firms in high-tech industries. Only localization economies have a positive and significant effect on TFP throughout, but the effect increases with technological intensity of industries. Throughout, R&D is also found to have a positive effect that increases with technological intensity.

Keywords: total factor productivity; manufacturing firms; agglomeration economies; spatial concentration; structural estimation (search for similar items in EconPapers)
JEL-codes: D24 R11 R12 R15 (search for similar items in EconPapers)
Date: 2019
New Economics Papers: this item is included in nep-com, nep-eff, nep-geo, nep-sbm and nep-ure
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7)

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Related works:
Working Paper: Agglomeration Economies and the Firm TFP: Different Effects across Industries (2019)
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:vfsc19:203597

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