Discussion paper

DP7191 The productivity advantages of large cities: Distinguishing agglomeration from firm selection

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.

£6.00
Citation

Duranton, G, P Combes, D Puga, L Gobillon and S Roux (eds) (2009), “DP7191 The productivity advantages of large cities: Distinguishing agglomeration from firm selection”, CEPR Press Discussion Paper No. 7191. https://cepr.org/publications/dp7191