Agglomeration Economies, Technology Spillovers and Company Productivity Growth

Abstract

This paper examines some of the determinants of total factor productivity growth using a sample of 216 large U.K. firms observed over the period 1974-90, and then using three further samples which were used to check the robustness of the results. The main focus of the paper is on identifying the size of agglomeration economies and technology spillovers between firms. Both types of externality should drive the productivity growth rates of individual firms together (and, in the second case, link them to the incidence of innovation). The overwhelming feature of the data, however, is that productivity growth rates, at the level of the firm, are very idiosyncratic. Not only are they extremely hard to predict using their own history, but they are also very difficult to predict using information on the productivity growth or innovative activity of their rivals. We conclude that agglomeration economies and technological spillovers are, at best, of very modest size.

JEL Classification: L2, L7