What Makes Cities More Productive? Evidence on the Role of Urban Governance from Five OECD Countries

This paper estimates agglomeration benefits based on city productivity differentials across five OECD countries (Germany, Mexico, Spain, United Kingdom, and United States). It highlights the relationship between cities’ governmental fragmentation and productivity, and represents the first empirical analysis of how metropolitan governance structures affect this relationship. The comparability of results in a multi-country setting is supported through the use of Functional Urban Areas – an internationally harmonised definition of cities based on economic linkages rather than administrative boundaries. In line with the previous literature, the analysis confirms that city productivity tends to increase with city size; doubling city size is found to be associated with an increase in productivity of between two and five percent. What is more, city productivity is positively associated with the population size of nearby cities. On the governance side, the paper finds that cities with fragmented governance structures tend to have lower levels of productivity. For a given population size, a metropolitan area with twice the number of municipalities is associated with around six percent lower productivity; an effect that is mitigated by almost half by the existence of a governance body at the metropolitan level.