Uncovering the Urban Advantage of Australian Firms: New Evidence from BLADE Data

This paper quantifies the productivity advantages of urban firms within and across Australian
states and industries. Following Combes et al. (2012), we decompose the source of urban
advantages into agglomeration and selection effects using the most exhaustive data source on
Australian businesses: BLADE. Our findings show that most of the urban productivity
advantages are due to agglomeration effects and that these advantages differ substantially
across Australian states. They range from 10% in WA to 1.5% in SA in terms of relative urban
productivity gains for a representative firm with mean productivity. These advantages also vary
across industries: they are twice as large for manufacturing firms in QLD (5.1%) vs NSW (2.4%)
while nearly three times as large for service firms in NSW (11.7%) vs QLD (4.1%). Urban
advantages are concentrated among mature firms, and among high-productivity businesses
within young firms.