Abstract
The paper proposes and tests an alternative way to incorporate a spatial dimension to the Verdoorn Law using multilevel models, tailored to deal with nested data. This methodology allows extending the Verdoorn equation, incorporating elements from Urban Economics to Post-Keynesian growth analysis. The estimations used firm-level data from the Brazilian manufacturing industry from 1996 to 2002. The results showed that, after controlling for firms’ characteristics, the spatial dimension is crucial to explain rates of labour productivity and output growth. Moreover, the estimations showed that substantial knowledge spillovers and urbanisation externalities are beneficial to firms’ growth, whereas localisation externalities tend to be harmful.
Highlights
In the early 2000s, a renewed interest on the interaction of spatial factors and economic activities could be observed in the mainstream economic literature
The models produced by New Economic Geography Models (NEG) authors, in particular, have been able to emulate a number of different patterns of urban agglomerations using the combination of increasing returns to scale as centripetal forces and transport costs and centrifugal forces
In this paper, expanding on the post-keynesian tradition, we propose and test an alternative way to incorporate a spatial dimension to the study of productivity growth, and of increasing returns to scale in particular, through the use of hierarchical models (Goldstein, 1995; Hox, 1995; Raudenbush & Bryk, 2002)
Summary
In the early 2000s, a renewed interest on the interaction of spatial factors and economic activities could be observed in the mainstream economic literature. Models inspired by the cumulative causation literature and by Verdoorn’s Law have been improved to account for the influence of regional factors through the use of spatial econometrics on post-keynesian-kaldorian, models. This approach was adopted using regional data, for instance, by Fingleton and McCombie (1998), Fingleton (2001a, 2001b, 2003a, 2005) and Angeriz et al (2006), amongst others.
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