Agglomeration economies and regional intangible assets: an empirical investigation

This article examines the impact of agglomeration economies on economic outcomes and is specifically concerned with analysing the effect on standard regressions of including variables that measure intangible assets that might boost productivity as well. Thus, in assessing the relationship between agglomeration and productivity, we consider endogeneity issues arising from the omission of these variables, together with problems of simultaneity and missing cross-regional covariates. We examine each of these features and consider the extent to which they represent a source of bias in the agglomeration elasticity if they are not controlled for. While our results indicate that agglomeration has a marked, positive influence on productivity, these estimates are reduced dramatically when spatial dependence and other, hitherto omitted, variables proxying intangible assets are controlled for.