Replication files for this paper are available from http://diegopuga.org/data/selectagg/. We thank Kristian Behrens, Steven Berry, Stéphane Grégoir, Robert McMillan, Marc Melitz, Peter Neary, Gianmarco Ottaviano, Giovanni Peri, Stephen Redding, John Sutton, Daniel Trefler, five anonymous referees, and conference and seminar participants for comments and discussions. We gratefully acknowledge funding from the Agence Nationale de la Recherche through grant COMPNASTA (Combes), the Banco de España Excellence Programme (Puga), the Canadian Social Science and Humanities Research Council (Duranton), the Centre National de la Recherche Scientifique (Combes), the Comunidad de Madrid through grant S2007/HUM/0448 PROCIUDAD-CM (Duranton and Puga), the European Commission's Seventh Research Framework Programme through contract 269868 for the European Research Council's Advanced Grant “Spatial Spikes” (Puga), and through contract 225551 for the Collaborative Project “European Firms in a Global Economy” (EFIGE) (Combes, Duranton, Gobillon, and Puga), the Fundación Ramón Areces, and the IMDEA Ciencias Sociales and Madrimasd Foundations (Puga).
The Productivity Advantages of Large Cities: Distinguishing Agglomeration From Firm Selection
Article first published online: 26 NOV 2012
© 2012 The Econometric Society
Volume 80, Issue 6, pages 2543–2594, November 2012
How to Cite
Combes, P.-P., Duranton, G., Gobillon, L., Puga, D. and Roux, S. (2012), The Productivity Advantages of Large Cities: Distinguishing Agglomeration From Firm Selection. Econometrica, 80: 2543–2594. doi: 10.3982/ECTA8442
- Issue published online: 26 NOV 2012
- Article first published online: 26 NOV 2012
- Manuscript received February, 2009; final revision received February, 2012.
- firm selection;
Firms are more productive, on average, in larger cities. Two main explanations have been offered: firm selection (larger cities toughen competition, allowing only the most productive to survive) and agglomeration economies (larger cities promote interactions that increase productivity), possibly reinforced by localized natural advantage. To distinguish between them, we nest a generalized version of a tractable 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. Using this prediction, French establishment-level data, and a new quantile approach, we show that firm selection cannot explain spatial productivity differences. This result holds across sectors, city size thresholds, establishment samples, and area definitions.