Testing for Causality between Productivity and Agglomeration Economies

17 Pages Posted: 19 Dec 2010

See all articles by Daniel J. Graham

Daniel J. Graham

Imperial College London - Department of Civil and Environmental Engineering

Patricia Melo

Imperial College London

Piyapong Jiwattanakulpaisarn

affiliation not provided to SSRN

Robert B. Noland

Imperial College London

Date Written: December 2, 2010

Abstract

The productivity effects of agglomeration economies are often treated as endogenous in empirical work due to the potential for reverse causality. The extent to which these relationships are actually simultaneously determined, however, remains largely unobserved. This paper estimates panel data vector autoregressions for different sectors of the economy to test for bidirectional causality between productivity and both localization and urbanization economies. The aim is to address some key questions that will help to identify the extent of the endogeneity problem. Can we actually observe bidirectionality in the data? Does it feature more for some industries than for others? Is it more prevalent for localization or urbanization economies? The results show that agglomeration economies are not strictly unidirectional and that higher levels of productivity can induce growth in the scale of local urban and industrial environments. The paper discusses the difficulties that these issues pose for the estimation of agglomeration economies.

Suggested Citation

Graham, Daniel J. and Melo, Patricia and Jiwattanakulpaisarn, Piyapong and Noland, Robert B., Testing for Causality between Productivity and Agglomeration Economies (December 2, 2010). Journal of Regional Science, Vol. 50, Issue 5, pp. 935-951, 2010. Available at SSRN: https://ssrn.com/abstract=1727915 or http://dx.doi.org/10.1111/j.1467-9787.2010.00676.x

Daniel J. Graham (Contact Author)

Imperial College London - Department of Civil and Environmental Engineering ( email )

Exhibition Road
London SW7 2AZ
United Kingdom

Patricia Melo

Imperial College London ( email )

South Kensington Campus
Exhibition Road
London, Greater London SW7 2AZ
United Kingdom

Piyapong Jiwattanakulpaisarn

affiliation not provided to SSRN

Robert B. Noland

Imperial College London ( email )

South Kensington Campus
Exhibition Road
London SW7 2AZ, SW7 2AZ
United Kingdom

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