Agglomeration and labour productivity in Spain over the long term

This paper analyses the relationship between spatial density of economic activity and interregional differences in the productivity of industrial labour in Spain during the period 1860-1999. In the spirit of Ciccone and Hall (Am Econ Rev 86: 54-70, 1996) and Ciccone (Eur Econ Rev 46: 213-227, 2002), we analyse the evolution of this relationship over the long term in Spain. Using data on the period 1860-1999 we show the existence of an agglomeration effect linking the density of economic activity with labour productivity in the industry. This effect was present since the beginning of the industrialisation process in the middle of the nineteenth century but has been decreasing over time. Our results show that doubling employment density raises average labour productivity in the industrial sector by between 3 and 5% in all periods analysed, with the exception of the last segment from the twentieth century. Hence, we find significant evidence of agglomeration effects. However, these effects seem to have been falling sharply from the mid-nineteenth century until late in the twentieth century, and there appears to be no positive evidence of agglomeration effects in industry in the period 1985-1999. This result could be explained by an important increase in the congestion effects in large industrial metropolitan areas that would have compensated the centripetal or agglomeration forces at work. Furthermore, this result is also consistent with the evidence of a dispersion of industrial activity in Spain during the last decades.