Cities never forget: A spatially robust estimation of the local agglomeration premium

Gábor Békés, P Harasztosi

    Research output: Other contribution

    Abstract (may include machine translation)

    Ample theoretical and empirical evidence suggests that more densely populated regions are more productive. This paper uses instrumental variable technique to identify the causal relationship running from agglomeration economies to firm productivity on a 1996-2006 municipality level Hungarian dataset. To tackle simultaneity problem, historical municipality population data is harnessed from 1880. To address spatial inequality regarding the quality of labour and distribution of manufacturing sectors, education information is used as a proxy for the human capital. The raw long run density elasticity of productivity in Hungary is estimated to be 14%. Controlling for the spatial differences in the distribution of different sectors, and the notion that more dense regions are more likely to attract high-quality workforce drops the point estimate to 10 %. With the use of historical instruments to take endogenous labour quantity into account and controlling for some persistent first geography features our estimate falls to about 5%.
    Original languageEnglish
    PublisherMICRO-DYN
    StatePublished - 2011

    Publication series

    NameMICRO-DYN Working Paper ; 01/11.

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