Agglomeration Effects and Financial Performance

47 Pages Posted: 27 Aug 2007 Last revised: 29 Oct 2009

Maarten Jennen

RSM Erasmus University

Patrick Verwijmeren

Erasmus University Rotterdam (EUR) - Erasmus School of Economics (ESE)

Date Written: October 28, 2009

Abstract

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.

Keywords: Agglomeration, financial performance, productivity

JEL Classification: R30, J20, G39

Suggested Citation

Jennen, Maarten and Verwijmeren, Patrick, Agglomeration Effects and Financial Performance (October 28, 2009). Urban Studies, Forthcoming. Available at SSRN: https://ssrn.com/abstract=1009226

Maarten Jennen (Contact Author)

RSM Erasmus University ( email )

P.O. Box 1738
Room T08-21
3000 DR Rotterdam, 3000 DR
Netherlands
0031-10-4081276 (Phone)
0031-10-4089017 (Fax)

Patrick Verwijmeren

Erasmus University Rotterdam (EUR) - Erasmus School of Economics (ESE) ( email )

P.O. Box 1738
3000 DR Rotterdam, NL 3062 PA
Netherlands

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