Economic activity is concentrated in urban areas and during the 20th century the urban population grew at a faster rate than the national average in many countries. Why is this the case? In this paper we focus on the urban premium in firms’ productivity.
We run two exercises. First, we document an urban premium in the level of firms’ productivity and we inspect its determinants among both firm and city characteristics. Second, we corroborate the evidence on the determinants of the urban productivity gap, studying the heterogeneity in productivity across urban and non-urban areas by means of a Blinder–Oaxaca decomposition.
The results point to a sizable urban productivity premium, mostly explained by firm size and by some characteristics of urban areas, in particular the average levels of educational attainment and labor market participation.
