Agglomeration, productivity and the role of transport system improvements

We explore how transport improvements impact agglomeration defined as accessibility and thereby productivity in mid-Sweden including Stockholm 1995–2006. We apply an accessibility index derived from a multi-modal transport model. This is a more accurate measure of agglomeration than those previously used and also necessary for understanding how governments can impact agglomeration, and thereby productivity, by transport investments. We regress temporal changes in wages on temporal changes in agglomeration by applying a FE estimator. We deal with the potential endogeneity using a novel instrumental variable. Our best estimates of the agglomeration elasticity on productivity lie within the interval 0.028–0.035.