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. Stonger selection in larger cities left-truncates the productivity distribution whereas stronger agglomeration right-shifts and dilates the distribution. We assess the relatvie 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, firm selection, productivity, cities
Authors: Pierre-Philippe Combes; Gilles Duranton; Laurent Gobillon; Diego Puga; Sebastien Roux
The Productivity Advantages of Large cities- Distinguishing Agglomeration.pdf
