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Agglomeration Economies, Efficiency and Productivity Growth in the Retail Trade Sector, 2001-2007

Agglomeration Economies, Efficiency and Productivity Growth in the Retail Trade Sector, 2001-2007. Bruce Domazlicky Southeast Missouri State University. Outline of Presentation. The Retail Trade Sector in the U.S. Agglomeration Economies Efficiency and Productivity Growth Model

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Agglomeration Economies, Efficiency and Productivity Growth in the Retail Trade Sector, 2001-2007

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  1. Agglomeration Economies, Efficiency and Productivity Growth in the Retail Trade Sector, 2001-2007 Bruce Domazlicky Southeast Missouri State University

  2. Outline of Presentation • The Retail Trade Sector in the U.S. • Agglomeration Economies • Efficiency and Productivity Growth • Model • Model Results • Relationship between Agglomeration Economies & Efficiency • Relationship between Agglomeration Economies & Productivity Growth

  3. Retail Trade Sector • Important Contributor to Standard of Living in an Urban Area • Supplies Goods & Services that Residents Demand • Important Source of Jobs to Urban Residents

  4. Recent Developments in the Retail Trade Sector • Computerization: Bar Scanning Universal in U.S. • Improved Inventory Tracking • Increased Average Size of Retail Establishments • Increased Concentration in Urban Areas at expense of Rural Areas

  5. Types of Agglomeration Economies • Localization Economies: economies that arise when firms in the same industry locate near each other: pooling of labor force, development of industry suppliers, diffusion of ideas (technological spillovers) • Urbanization Economies: economies that arise from locating in an urban area: access to markets, labor supply, financial and other specialized services, low communication costs

  6. Research Questions • Does efficiency in the retail trade sector increase with urban size? • Does productivity growth in the retail trade sector increase with urban size? • What is relationship between agglomeration economies and efficiency in the retail trade sector? • What is relationship between agglomeration economies and productivity growth in the retail trade sector?

  7. Basic Model • Data Envelopment Analysis is used to measure efficiency levels • Productivity Growth is measured using the Malmquist Productivity Index

  8. Data • 348 Metropolitan Statistical Areas in U.S. • 3 Variables: Output, Labor, Capital • Output and Labor from the Bureau of Economic Analysis:Http://www.bea.gov • Capital computed using variation on method by Garofalo and Yamarik (REStat, 2002)

  9. Table 1. Variable Statistics

  10. Table 2. Efficiency Estimates

  11. Table 4. Average Efficiency by Region

  12. Table 6. Average Efficiency Scores by Metropolitan Size

  13. Table 3. Productivity Estimates, 2001-2007

  14. Table 5. Average Productivity Growth by Region

  15. Table 7. Average Productivity Growth by Metropolitan Size

  16. Agglomeration Economies & Efficiency Regression Results

  17. Variable Definitions • AVEEFF: Average Efficiency • URBAN: Urbanization Economies, log of average population • LOCAL: Localization economies, relative share of retail trade output • EDUC: Percentage of population with at least a Bachelor’s Degree

  18. Table 8. Efficiency RegressionDependent Variable: AVEEFFNo. of Obs.: 348

  19. Agglomeration Economies & Productivity Growth Regression Results

  20. Variable Definitions • PROD: Productivity growth, 2001-2007 • TC: Growth rate of technical change, 2001-2007 • EC: Growth rate of efficiency change, 2001-2007

  21. Table 9. Productivity RegressionsNo. of Obs.: 348 (Numbers in parentheses are t-statistics.)

  22. Conclusions • Efficiency in urban areas increase with city size & relative importance of sector • Productivity change is due solely to technical change • Efficiency change declines as urban size increases-indication of “catching-up”?

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