2005
DOI: 10.1093/jeg/lbi020
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Heterogeneous firms, agglomeration and economic geography: spatial selection and sorting

Abstract: A Melitz-style model of monopolistic competition with heterogeneous firms is integrated into a simple New Economic Geography model to show that the standard assumption of identical firms is neither necessary nor innocuous. We show that relocating to the big region is most attractive for the most productive firms; this implies interesting results for empirical work and policy analysis. A 'selection effect' means standard empirical measures overestimate agglomeration economies. A 'sorting effect' means that a re… Show more

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Cited by 286 publications
(81 citation statements)
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“…Because of more intense competitions in product and factor markets within agglomerated regions, firms with originally high productivity are more likely to locate in such area (Baldwin & Okubo, 2006). We address the possibility of such reverse causality from productivity to agglomeration in two ways: first, we lag all indicators of agglomeration one period along with the control variables.…”
Section: Empirical Model Of Agglomeration Effectsmentioning
confidence: 99%
“…Because of more intense competitions in product and factor markets within agglomerated regions, firms with originally high productivity are more likely to locate in such area (Baldwin & Okubo, 2006). We address the possibility of such reverse causality from productivity to agglomeration in two ways: first, we lag all indicators of agglomeration one period along with the control variables.…”
Section: Empirical Model Of Agglomeration Effectsmentioning
confidence: 99%
“…A location may grow rapidly due to the concentration of large firms rather than to the localization of externalities. Hence, the agglomeration of more productive firms may simply be the result of a spatial selection and sorting process in which more productive firms are drawn to denser, more competitive and better endowed economic areas (Baldwin and Okubu 2006). Such endogeneity problems undermine inferences about firms using cities or regions as the lowest unit of analysis.…”
Section: Literature Reviewmentioning
confidence: 99%
“…Finally, the theoretical literature on the HME has recently produced several works, among which we may cite Melitz (2003), Baldwin and Okubo (2004), Behrens and Thisse (2005), Baldwin and Robert-Nicoud (2005) and Okubo and Rebeyrol (2006); most of them explore the consequences of the introduction of heterogenous companies for the HME.…”
Section: Concept and Theoretical Discussionmentioning
confidence: 99%