Identifying the Sources of Local Productivity Growth

Abstract

Using firm‐level based TFP indicators (as opposed to employment‐based proxies) we estimate the effects of alternative sources of dynamic externalities at the local level. In contrast to previous empirical work, we find that industrial specialization and scale indicators affect TFP growth positively, while neither product variety nor the degree of local competition have any effect. Employment‐based regressions yield nearly the opposite results, in line with most of previous empirical work. We argue that such regressions suffer from serious identification problems when interpreted as evidence of dynamic externalities. Our results question the conclusions of most of the existing literature on dynamic agglomeration economies. (JEL: R11, O47)

Industrial structure and total factor productivity: the Tunisian manufacturing sector between 1998 and 2004

“…Through a consistent estimation of the production function parameters and a measure of total factor productivity at firm-level PG F it , we adopt the same indicator proposed by Cingano and Schivardi (2004) given by a weighted average TFP at the delegation-sector level: 9…”

“…As productivity contributes importantly to economic growth, research in this field is then shifted to examining the effect of agglomeration economies on firm productivity, using firm-level data. The seminal work by Henderson (2003) and Cingano and Schivardi (2004) is those of the first empirical studies of the effects of agglomeration economies on firm-level productivity growth. Using firm-level-based TFP indicators, Cingano and Schivardi (2004) estimate the effects of alternative sources of dynamic externalities at the local level.…”

“…The seminal work by Henderson (2003) and Cingano and Schivardi (2004) is those of the first empirical studies of the effects of agglomeration economies on firm-level productivity growth. Using firm-level-based TFP indicators, Cingano and Schivardi (2004) estimate the effects of alternative sources of dynamic externalities at the local level. The author find that industrial specialization and scale indicators affect TFP growth positively, while neither product variety nor the degree of local competition has any effect.…”

“…The majority of studies that followed these two papers have often found evidence of positive externalities arising from urban or industrial scale, while the impact of specialization is, in most cases, not significant (for a review of the empirical literature, see Rosenthal and Strange 2004;Graham and Kim 2008). Cingano and Schivardi (2004) related these results to the fact that technological spillovers affect productivity rather than employment. Moreover, inferring productivity through employment is often problematic.…”

“…Combes et al (2004) showed that for a positive productivity shock to yield employment growth, demand should be elastic enough. To solve this problem, like Henderson (2003) and Cingano and Schivardi (2004), Baudewyns (2005), and more recently Martin et al (2011), we use total factor productivity as a measure of regional development rather than employment.…”