Determinants Of Manufacturing Efficiency In Canadian Cities: A Stochastic Frontier Approach

This study uses panel data to estimate stochastic production frontiers for Canadian cities. Efficiency indices are derived from the production frontiers. Regression analysis of the determinants of a city's inefficiency shows that population size and density both increase efficiency. These results are consistent with the existence of static agglomeration economies or of a systematically increasing failure of smaller cities to use best-practice technology. In either case, the results imply that urbanization may have an important positive influence on national economic growth.