Agglomeration Effects and Financial Performance
RSM Erasmus University
Erasmus University Rotterdam (EUR) - Erasmus School of Economics (ESE)
October 28, 2009
Urban Studies, Forthcoming
This study empirically tests the tradeoff between the costs and benefits of agglomeration for a large sample of firms. In line with the existing literature, we find that population and employment density benefit productivity but increase labor and real estate costs. To test the tradeoff of benefits and drawbacks of agglomeration, we focus our analysis on the relation between agglomeration and profitability. For a sample of single-establishment Dutch firms, we find that on average the costs of settling in an area with a dense spatial distribution of employment outweigh the benefits; an effect that holds for both urbanization and localization measures. In general, doubling the employment density will decrease the average return on assets by more than one percentage point.
Number of Pages in PDF File: 47
Keywords: Agglomeration, financial performance, productivity
JEL Classification: R30, J20, G39
Date posted: August 27, 2007 ; Last revised: October 29, 2009
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