Geography, productivity, and trade: Does selection explain why some locations are more productive than others?

摘要

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 find no impact of selection on local productivity differences. We theoretically show that selection effects do emerge when heterogeneous trade costs and the different spatial scale at which agglomeration and selection may work are properly taken into account. Our empirical findings confirm that agglomeration effects play a major role. However, they also show a substantial increase in the importance of the selection effect.