The productive city needs both : localization and urbanization economies across spatial scales in the city

This paper revisits a classical inquiry by addressing the question of localization and urbanization economies. We propose that specialization and diversity may offer externalities operating at different spatial scales. Using high-resolution geo-coded plant-level panel data for Swedish cities allowing us to observe neighborhoods of 1 km2, we estimate a firm-level production function to show that close proximity to employment density in the own industry, as well as city-wide diversity, positively contribute to productivity of firms. While localization economies appear to be bound to the immediate neighborhood level within cities, urbanization grow stronger at larger spatial scales. These results provide some support for that urbanization economies and localization economies not only co-exist but also co-depend.