Agglomeration economies: different effects on TFP in high-tech and low-tech industries

Abstract

We study the impact of agglomeration effects on firms’ total factor productivity (TFP) for industry groups defined by technology intensity. This allows for non-uniform effects on firms depending on their technological level. We find that urban economies have the largest impact on firm productivity in high-technology industries, while they have no effect in low-technology industries. For firms in the latter industries, the diversity of the local economic structure is relevant. Localisation effects have a consistently positive and significant impact on TFP, with the effect increasing with the technology intensity of the industries.