Agglomeration, productivity and the role of transport system improvements

We explore how the transport improvements impact agglomeration and thereby productivity in mid-Sweden including Stockholm 1995-2006. We measure agglomeration, and changes in agglomeration in response to transport improvements, based on travel times. This is a more accurate measure of agglomeration than previously used and also necessary for understanding how governments can impact agglomeration, and thereby productivity, by transport investments. We regress temporal changes in wages on temporal changes in agglomeration applying a FE estimator. We deal with the potential endogeneity using a novel instrument variable. Our best estimates of the agglomeration elasticity on productivity lie within the interval 0.028-0.035.

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