Location Management: Productivity of Bigger Cities

The choice of optimal location is of crucial importance for production efficiency of firms. The large size of urban centers generates demand for variety of general intermediate products which results in efficient supply of these products in those urban areas. The resulting economic diversity and specialization of urban areas provide efficient supply of infrastructure and intermediate products for industries in that location. The principal aim of this paper is to analyze the impact of external scale economies of city size on the production efficiency of industries in urban areas. The study takes a production function approach and examines the impact of external economies of urbanization on the Hicks neutrality coefficient. The study covers 19 two digit SIC level industries in 47 SMSAs in the United States. The findings show that the city size increases the productivity of industries. The results confirm the relationship between economic diversity of urban centers and production efficiency.