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Measures of urban productivity are typically positively associated with city population. But is this relationship causal? We discuss the main sources of bias in the proper identification of agglomeration effects. We also assess a variety of solutions that have been proposed in the literature to deal with them.

For two decades new economic geography has focused on 'macro-heterogeneity' across locations showing how this can be endogenously generated by the microeconomic decisions of identical people and firms. This paper argues that future research should look more deeply into finer 'micro-heterogeneity' across people and firms, shedding light on how the interactions between the two levels of heterogeneity affect the existence and the intensity of agglomeration economies.

This article analyses the impact of labour market-induced externalities on firm performance by using a unique database that connects attributes of individuals to workplaces for the entire Swedish economy. Based on the analysis of 256,985 workplaces, our results show that firms belonging to networks of local job mobility (i.e. 'localized mobility clusters') significantly outperform other similar firms within the local labour market. The results also indicate that concentrations of similar and related firms do not explain any considerable part of the variations in firm competitiveness. Labour market externalities derived via local job mobility produce significantly more powerful effects for the involved firms as compared to the degree of co-location, diversity and scale.

Urban economic theory points to one measure of agglomeration economies, namely differential land rent in intense clusters of economic activity. The empirical basis for this research is commercial office rents in major office markets of the USA. Using panel data, we estimate models of changes in real office rents for 120 major office markets, in 49 MSAs, over 18 years. Our variable reflecting agglomeration economies is changes in producer service employment. Our results suggest that there are agglomeration economies in CBDs of the larger metropolitan office markets but not in the smaller, and not in any suburban office markets.

Large cities produce more output per capita than small cities. This higher productivity may occur because more talented individuals sort into large cities, because large cities select more productive entrepreneurs and firms, or because of agglomeration economies. We develop a model of systems of cities that combines all three elements and suggests interesting complementarities between them. The model can replicate stylized facts about sorting, agglomeration, and selection in cities. It also generates Zipf’s law for cities under empirically plausible parameter values. Finally, it provides a useful framework within which to reinterpret extant empirical evidence.

Firms are more productive, on average, in larger cities. Two main explanations have been offered: firm selection (larger cities toughen competition, allowing only the most productive to survive) and agglomeration economies (larger cities promote interactions that increase productivity), possibly reinforced by localized natural advantage. To distinguish between them, we nest a generalized version of a tractable firm selection model and a standard model of agglomeration. Stronger selection in larger cities left-truncates the productivity distribution, whereas stronger agglomeration right-shifts and dilates the distribution. Using this prediction, French establishment-level data, and a new quantile approach, we show that firm selection cannot explain spatial productivity differences. This result holds across sectors, city size thresholds, establishment samples, and area definitions.

Much emphasis has been placed on the importance of agglomeration economies as a backbone to urban and regional growth. Case study research points out that particular cities and regions have a competitive advantage in industrial activity over others, yet we have little by way of a satisfactory means of formally studying the geography of these industrial patterns to demonstrate how the specific case studies fit into a larger pattern of agglomeration that can be applied to more than one place. Is the agglomeration itself in fact exhibiting statistically robust and significant patterns? What do the patterns look like and how do they differ by region? Using geographic information systems to analyze spatial autocorrelation and \"hot spots\" of industries, we compare the ten most populous metropolitan statistical areas across several \"advanced\" service sectors (professional, management, media, finance, art and culture, engineering and high technology). We find that much of the qualitative evidence on industrial clustering is evocative of broader macro patterns that are both similar and dissimilar across industries and geographies. Our results indicate that there are three spatial typologies of growth in the advanced services within U.S. urban regions. These typologies allow us to intimate qualities of place in general and of places specifically that drive the agglomeration of advanced services. New York City's art and culture and media industries represent key examples of geographically unique cases within advanced services that are explained relative to existing literature regarding the importance of density and cross-fertilization across industrial fields.

This article examines the role of regional clusters in regional entrepreneurship. We focus on the distinct influences of convergence and agglomeration on growth in the number of start-up firms as well as in employment in these new firms in a given region-industry. While reversion to the mean and diminishing returns to entrepreneurship at the region-industry level can result in a convergence effect, the presence of complementary economic activity creates externalities that enhance incentives and reduce barriers for new business creation. Clusters are a particularly important way through which location-based complementarities are realized. The empirical analysis uses a novel panel dataset from the Longitudinal Business Database of the Census Bureau and the US Cluster Mapping Project. Using this dataset, there is significant evidence of the positive impact of clusters on entrepreneurship. After controlling for convergence in start-up activity at the region-industry level, industries located in regions with strong clusters (i.e. a large presence of other related industries) experience higher growth in new business formation and start-up employment. Strong clusters are also associated with the formation of new establishments of existing firms, thus influencing the location decision of multi-establishment firms. Finally, strong clusters contribute to start-up firm survival.

Empirical research on cities starts with a spatial equilibrium condition: workers and firms are assumed to be indifferent across space. This condition implies that research on cities is different from research on countries, and that work on places within countries needs to consider population, income, and housing prices simultaneously. Housing supply elasticity will determine whether urban success reveals itself in the form of more people or higher incomes. Urban economists generally accept the existence of agglomeration economies, which exist when productivity rises with density, but estimating the magnitude of those economies is difficult. Some manufacturing firms cluster to reduce the costs of moving goods, but this force no longer appears to be important in driving urban success. Instead, modern cities are far more dependent on the role that density can play in speeding the flow of ideas. Finally, urban economics has some insights to offer related topics such as growth theory, national income accounts, public economics, and housing prices.

There is clear evidence that economic activity, in particular industrial activity, is unequally located in Spain. Further, the results from the analysis of single manufacturing sectors show an even higher spatial concentration. The aim of this paper is to demonstrate the extent to which agglomeration economies account for this high industrial concentration. To this end, I analyse the influence of various types of agglomeration on the location of manufacturing employment in Spanish cities. I consider two types of agglomeration economies: urbanization economies (associated with a city's population and employment levels and the diversity of its productive structure) and localization economies (associated with a city's specialization in one specific sector). Special attention is given to the geographical unit of analysis by employing spatial econometric techniques that allow the influence of agglomeration effects extending beyond a city's limits to be considered. The results demonstrate that agglomeration economies influence the location of manufacturing activity, with most sectors being influenced by urbanization economies and a few by localization economies. In some sectors, population or employment levels in neighboring cities were found to enhance a city's agglomeration economies.