Measuring the Benefits of Spatial Concentration Estimates of the elasticity of productivity—customarily measured by nominal wages with respect to city density—range between 4 percent and 5 percent for advanced economies.10 For developing countries, consensus is elusive: estimates range between 6 percent and 16 percent for Latin American countries (Quintero and Roberts percent for six African countries 2018; Duranton 2016); stand at around 17 (Ethiopia, Ghana, Malawi, Nigeria, Tanzania, Uganda) (Henderson, Nigmatulina, and Kriticos 2019); and reach 19 percent and 12 percent for China and India, respectively (Chauvin et al. 2017).
Meta-Analysis of Existing Estimates To cast the net more broadly and begin to understand what drives these numbers, Grover, Lall, and Timmis (2021) examine more than 1,200 estimates from 70 studies covering 33 countries over the period 1973 to 2020. Panel a of figure 2.9 presents estimates from that exercise for selected countries that seem to confirm that developing countries have huge benefits from agglomeration. The elasticity is nearly 5 points higher than the elasticity for developed countries. Panel b shows a refinement of the estimates based on studies that instrument current density with historical density to mitigate reverse quantity effects (that is, productive places attracting more people and firms). The unweighted mean estimate is 7.1 percent for non–high-income countries, compared to 3.9 percent for high-income economies. The meta-analysis by Grover, Lall and Timmis (2021) confirms that these aggregate estimates hide substantial heterogeneity across various dimensions: countries, sectors, and skills (see figure 2.9 for country-level differences and figure 2.10 for additional differences by sector and productivity measure). While there are positive returns in China, India, and countries in Africa, estimates from Chile actually have negative wage elasticity estimates. The meta-analysis suggests that these elasticity estimates are on average 3.5 percentage points higher than the overall estimates. Skilled workers disproportionately benefit from density—the elasticity being 1.7 percentage points higher in studies that estimate this separately relative to those that do not (figure 2.11 summarizes the results of the meta-analysis). This is consistent with findings in the literature of a higher skilled (nominal) wage premium in denser cities (see, for example, Ahlfedt and Pietrostefani 2019; Moretti 2013). For example, cognitive and social skills and those relating to non-routine jobs are better rewarded in large cities, while rewards to motor skills and physical strength are lower (Bacolod, Blum, and Strange 2009; Andersson, Klaesson, and Larsson 2014). Looking at studies using distinct elasticities yields further insights into the contribution of agglomeration. Estimates using nominal wages or labor productivity are 6.3 percentage points and 4.3 percentage points higher than those using total factor Agglomeration Economies, Productivity, and the Persistence of Place 27
