Premium
FIRM DYNAMICS IN AN URBAN ECONOMY *
Author(s) -
Brinkman Jeffrey,
CoenPirani Daniele,
Sieg Holger
Publication year - 2015
Publication title -
international economic review
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 2.658
H-Index - 86
eISSN - 1468-2354
pISSN - 0020-6598
DOI - 10.1111/iere.12133
Subject(s) - economies of agglomeration , externality , subsidy , economics , relocation , productivity , welfare , general equilibrium theory , panel data , distribution (mathematics) , microeconomics , economy , macroeconomics , market economy , econometrics , mathematical analysis , mathematics , computer science , programming language
We develop a new dynamic general equilibrium model to explain firm entry, exit, and relocation decisions in an urban economy with multiple locations and agglomeration externalities. We characterize the stationary distribution of firms that arises in equilibrium. We estimate the parameters of the model using a method of moments estimator. Using unique panel data collected by Dun and Bradstreet, we find that agglomeration externalities increase the productivity of firms by up to 8%. Economic policies that subsidize firm relocations to the central business district increase agglomeration externalities in that area. They also increase economic welfare in the economy.