Uncovering Urban Advantages: Evidence from Australian Firm‐Level Data *

This paper quantifies the productivity advantages of urban firms in Australia. Following Combes et al. (Econometrica 2012, 80, 2543), we decompose the source of urban advantages into agglomeration and selection effects using the most exhaustive data source on Australian businesses: the Business Longitudinal Analysis Data Environment (BLADE). We find that urban advantages increase the productivity of the average firm by nearly 6 per cent, and that most of such advantages are attributed to agglomeration effects rather than selection. Urban advantages differ substantially across sectors and by firm age. In particular, they are larger in services than in manufacturing and relatively benefit mature firms. We also perform a state‐level analysis, which largely confirms our main findings at the country level.