This chapter examines the link between firm productivity and the population composition of the areas in which firms operate.
We combine annual firm-level microdata on production, covering a large proportion of the New Zealand economy, with area-level workforce characteristics obtained from population censuses.
Overall, the results support the existence of agglomeration effects that operate through labour markets. We find evidence of productive spillovers from operating in areas with high-skilled workers, and with high population density.
A high-skilled local workforce benefits firms in high-skilled and high-research and development industries, and small firms. The benefits of local population density are strongest for firms in dense areas, and for small and new firms. Firms providing local services are more productive in areas with high shares of migrants and new entrants, consistent with local demand factors.