Estimating Agglomeration Economies with History, Geology, and Worker Effects

47 Pages Posted: 10 Jun 2008

See all articles by Pierre-Philippe Combes

Pierre-Philippe Combes

Institut d'Etudes Politiques de Paris (Sciences Po) - Department of Economics; Centre for Economic Policy Research (CEPR)

Gilles Duranton

London School of Economics & Political Science (LSE) - Department of Geography and Environment; Centre for Economic Policy Research (CEPR)

Laurent Gobillon

National Institute of Statistics and Economic Studies (INSEE) - Center for Research in Economics and Statistics (CREST); National Institute of Demographic Studies (INED)

Sébastien Roux

National Institute of Statistics and Economic Studies (INSEE) - Center for Research in Economics and Statistics (CREST)

Date Written: February 1, 2008

Abstract

Does productivity increase with density? We revisit the issue using French wage and TFP data. To deal with the 'endogenous quantity of labour' bias (i.e., urban agglomeration is consequence of high local productivity rather than a cause), we take an instrumental variable approach and introduce a new set of geological instruments in addition to standard historical instruments. To deal with the 'endogenous quality of labour' bias (i.e., cities attract skilled workers so that the effects of skills and urban agglomeration are confounded), we take a worker fixed-effect approach with wage data. We find modest evidence about the endogenous quantity of labour bias and both sets of instruments give a similar answer. We find that the endogenous quality of labour bias is quantitatively more important.

Keywords: agglomeration economies, instrumental variables, TFP, wages

JEL Classification: R12, R23

Suggested Citation

Combes, Pierre-Philippe and Duranton, Gilles and Gobillon, Laurent and Roux, Sébastien, Estimating Agglomeration Economies with History, Geology, and Worker Effects (February 1, 2008). CEPR Discussion Paper No. DP6728, Available at SSRN: https://ssrn.com/abstract=1141634

Pierre-Philippe Combes (Contact Author)

Institut d'Etudes Politiques de Paris (Sciences Po) - Department of Economics ( email )

28, rue des Saints peres
Paris, 75007
France

HOME PAGE: http://https://www.gate.cnrs.fr/ppcombes

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Gilles Duranton

London School of Economics & Political Science (LSE) - Department of Geography and Environment ( email )

Houghton Street
London, WC2A 2AE
United Kingdom
+44 20 7955 7604 (Phone)
+44 20 7955 7412 (Fax)

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Laurent Gobillon

National Institute of Statistics and Economic Studies (INSEE) - Center for Research in Economics and Statistics (CREST) ( email )

15 Boulevard Gabriel Peri
Malakoff Cedex, 1 92245
France

National Institute of Demographic Studies (INED) ( email )

133, Boulevard Davout
Paris cedex 20, France 75980
France
+33 1 5606 2016 (Phone)
+33 1 5606 2199 (Fax)

HOME PAGE: http://laurent.gobillon.free.fr/

Sébastien Roux

National Institute of Statistics and Economic Studies (INSEE) - Center for Research in Economics and Statistics (CREST) ( email )

15 Boulevard Gabriel Peri
Malakoff Cedex, 1 92245
France

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