Research Briefing | Nov 29, 2022

Why productivity growth rates vary across European cities

Over the medium and long term, differences in city economic performance are hugely influenced by disparities in productivity growth. In explaining past variations, national factors are important as are differences in industrial structure. But there are also city-specific factors. Leipzig, Amsterdam, Edinburgh and Paris are among the cities that have gained from city effects, while Liverpool and Bonn are two that have faced specific problems.

What you will learn:

  • City effects that are often identified include the skills of the workforce, the quality of infrastructure, and the quality of life.
  • Geographical clustering is also important. That is well-illustrated in Germany, where some of the most successful cities are in the south, and others in the east. The former is likely to reflect supply-chain linkages, in which success effectively passes from firm to firm and hence from city to city. The latter is of course related to German reunification, with cities in the east of Germany tending to catch up in productivity terms with those in the west.
  • “Catching up” also applies more widely across central and eastern European cities as an explanation for strong productivity growth, with these cities starting from a low base. In western parts of Europe, the reverse is often the case: many cities that start with high levels of productivity tend to experience faster productivity growth than others.
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