Working Paper: CEPR ID: DP7191
Authors: Pierre-Philippe Combes; Gilles Duranton; Laurent Gobillon; Diego Puga; Sébastien Roux
Abstract: Firms are more productive on average in larger cities. Two explanations have been offered: agglomeration economies (larger cities promote interactions that increase productivity) and firm selection (larger cities toughen competition allowing only the most productive to survive). To distinguish between them, we nest a generalised version of a seminal 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. We assess the relative importance of agglomeration and firm selection using French establishment-level data and a new quantile approach. Spatial productivity differences in France are mostly explained by agglomeration.
Keywords: Agglomeration; Cities; Firm Selection; Productivity
JEL Codes: C52; D24; R12
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| stronger selection effects in larger cities (R23) | left truncation of the productivity distribution (D39) |
| stronger agglomeration effects (R11) | rightward shift in the productivity distribution (D39) |
| agglomeration economies (R11) | enhanced productivity (O49) |
| firm selection (L10) | survival of the most productive firms (D21) |
| larger cities (R12) | higher productivity of firms and workers (O49) |
| agglomeration (R11) | productivity differences in metropolitan areas (R12) |
| selection effects (C52) | productivity differences in metropolitan areas (R12) |