Urban Productivity Estimation with Heterogeneous Prices and Labour

Abstract

This study estimates differences in productivity (mfp) across New Zealand urban areas, with a focus on the size of Auckland’s productivity premium. The estimates are based on analysis of firm-level data from Statistics New Zealand’s Longitudinal Business Database. The methods used in the paper overcome some of the biases that arise in standard approaches to spatial productivity estimation - biases arising from imperfect competition, spatial price variation, firm heterogeneity, and labour-sorting across cities. Ignoring these factors leads to biased estimates of the Auckland’s relative productivity performance. The study also investigates industry differences in spatial productivity patterns.