Firm Sorting and Agglomeration

Cecile Gaubert

American Economic Review, 2018, vol. 108, issue 11, 3117-53

Abstract: To account for the uneven distribution of economic activity in space, I propose a theory of the location choices of heterogeneous firms in a variety of sectors across cities. In equilibrium, the distribution of city sizes and the sorting patterns of firms are uniquely determined and affect aggregate TFP and welfare. I estimate the model using French firm-level data and find that nearly half of the productivity advantage of large cities is due to firm sorting, the rest coming from agglomeration economies. I quantify the general equilibrium effects of place-based policies: policies that subsidize smaller cities have negative aggregate effects.

JEL-codes: D22 D24 R11 R32 (search for similar items in EconPapers)
Date: 2018
Note: DOI: 10.1257/aer.20150361
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Citations: View citations in EconPapers (107)

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