Is there a limit to agglomeration? Evidence from productivity of Dutch firms

We compute aggregate productivity of three categories of regions, classified by the level of urbanization anddensity of economic activity in the Netherlands, from firm-specific total factor productivity (TFP) measures.TFP measures are estimated by a semi-parametric algorithm, within 2-digit industries, covering agriculture,manufacturing, construction, trade and services, using AMADEUS data over the period 1997–2006. Weanalyse the productivity differentials across urbanization categories by decomposing them into industryproductivity effect and industry composition effect. Our analysis indicates that there is non-linear net effectof agglomeration on productivity growth but in levels agglomeration is associated with higher productivity.