The Empirics of Agglomeration Economies

Abstract

The empirics of agglomeration economies* We propose an integrated framework to discuss the empirical literature on the local determinants of agglomeration effects. We start by presenting the theoretical mechanisms that ground individual and aggregate empirical specifications. We gradually introduce static effects, dynamic effects, and workers' endogenous location choices. We emphasise the impact of local density on productivity but we also consider many other local determinants supported by theory. Empirical issues are then addressed. Most important concerns are about endogeneity at the local and individual levels, the choice of a productivity measure between wage and TFP, and the roles of spatial scale, firms' characteristics, and functional forms. Estimated impacts of local determinants of productivity, employment, and firms' locations choices are surveyed for both developed and developing economies. We finally provide a discussion of attempts to identify and quantify specific agglomeration mechanisms.JEL Classification: J31, R12 and R23

Local Labor Market Size and Qualification Mismatch

“…In fact, higher local wages or areas with better matching could attract workers and increase local labor supply and thus employment density (Combes and Gobillon, 2015). Following several studies in the literature I use historical population values as an instrument for current density (Ciccone and Hall, 1996;Combes et al, 2008;Andini et al, 2013).…”

“…On the one hand, one would like to exclude the effects of skills from agglomeration economies, as far as this represents a pure composition effect (Combes and Gobillon, 2015). Highskilled individuals might be over-represented in cities, because they value city amenities more or because of historical migration of high-skilled individuals (with their skills being partly transmitted to their children).…”

Agglomeration Theory with Heterogeneous Agents

“…The empirical literature on the estimation of agglomeration economies, surveyed by Rosenthal and Strange (2004) and Melo et al (2009), estimates this parameter to be in the range from 0.02 to 0.1 for a variety of countries and using a variety of econometric techniques. The consensus among urban economists nowadays is that the "true" value of E is closer to the lower bound, especially when unobserved heterogeneity is controlled for using individual data and when different endogeneity concerns are properly addressed (see the chapter by Combes and Gobillon, 2015 in this handbook).…”

Do Rural Migrants Benefit from Labor Market Agglomeration Economies? Evidence from Chinese Cities

“…4 There are quite a few studies on business agglomeration in developing countries. For a review, see Combes and Gobillon (2015).…”

“…2 Combes and Gobillon (2015) provide a thorough review on empirical studies on testing both business and labor market agglomeration economies. 3 Many studies test Marshallian externalities in business sectors, see for example, Ellison et al (2010); Henderson (2003); Jofre-Monseny et al (2011);Rosenthal and Strange (2001).…”