Working Paper: CEPR ID: DP12835
Authors: Ccile Gaubert
Abstract: The distribution of firms in space is far from uniform. Some locationshost the most productive large firms, while others barely attract any.In this paper, I study the sorting of heterogeneous firms acrosslocations and analyze policies designed to attract firms to particularregions (place-based policies). I first propose a theory of thedistribution of heterogeneous firms in a variety of sectors acrosscities. Aggregate TFP and welfare depend on the extent of agglomerationexternalities produced in cities and on how heterogeneous firms sortacross them. The distribution of city sizes and the sorting patterns offirms are uniquely determined in equilibrium. This allows me tostructurally estimate the model, using French firm-level data. I findthat nearly half of the observed productivity advantage of largecities is due to firm sorting. I use the estimated model to quantifythe general equilibrium effects of place-based policies. I find thatpolicies that decrease local congestion lead to a new spatialequilibrium with higher aggregate TFP and welfare. In contrast,policies that subsidize under-developed areas have negative aggregateeffects.
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JEL Codes: No JEL codes provided
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| size of cities (R12) | productivity of firms (D21) |
| firm sorting (L29) | productivity advantage of large cities (R12) |
| agglomeration externalities (R11) | productivity of firms (D21) |
| policies incentivizing firms to locate in smaller cities (R38) | negative aggregate effects on TFP and welfare (D69) |
| policies promoting growth of cities (R38) | enhance productivity (O49) |