Geography, Productivity and Trade: Does Selection Explain Why Some Locations Are More Productive than Others?

65 Pages Posted: 3 May 2013

Multiple version iconThere are 2 versions of this paper

Date Written: April 24, 2013

Abstract

Two main hypotheses are usually put forward to explain the productivity advantages of larger cities: agglomeration economies and firm selection. Combes et al. (2012) propose an empirical approach to disentangle these two effects and fail to find any impact of selection on local productivity differences. We theoretically show that selection effects do emerge when asymmetric trade and entry costs and different spatial scale at which agglomeration and selection may work are properly taken into account. The empirical findings confirm that agglomeration effects play a major role. However, they also show a substantial increase in the importance of the selection effect when asymmetric trade costs and a different spatial scale are taken into account.

Keywords: agglomeration economies, firm selection, market size, entry costs, openness to trade

JEL Classification: C52, R12, D24

Suggested Citation

Accetturo, Antonio and Di Giacinto, Valter and Micucci, Giacinto and Pagnini, Marcello, Geography, Productivity and Trade: Does Selection Explain Why Some Locations Are More Productive than Others? (April 24, 2013). Bank of Italy Temi di Discussione (Working Paper) No. 910. Available at SSRN: https://ssrn.com/abstract=2259679 or http://dx.doi.org/10.2139/ssrn.2259679

Antonio Accetturo (Contact Author)

Bank of Italy ( email )

Via Nazionale 91
Rome, 00184
Italy

Valter Di Giacinto

Bank of Italy ( email )

Via Nazionale 91
Rome, 00184
Italy

Giacinto Micucci

Bank of Italy ( email )

Via Nazionale 91
Rome, 00184
Italy

Marcello Pagnini

Bank of Italy ( email )

Via Nazionale 91
Rome, 00184
Italy

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