The Neighborhood or the Region? Untangling the density-productivity relationship using geocoded data

I analyze the effects of sub-city level density of economic activity on worker productivity. Using a geocoded dataset on employment and wages in the city areas of Sweden, the analysis is based on squares representing “neighborhoods” (0.0625 km2), “districts” (1 km2), and “agglomerations” (10 km2). The wage-density elasticity depends crucially on spatial resolution, with the elasticity being highest in neighborhood squares. The results are consistent with i) the existence of a localized density spillover effect and ii) quite sharp attenuation of human capital spillovers. An implication of the findings is that if the data source is not sufficiently disaggregated, analyses of the density-productivity link risk understating the benefits of working in dense parts of regions, such as the central business districts.