The Effects of Agglomeration Economies on Firm Productivity in Ireland: Evidence from the Census of Industrial Production 2009

There are notable differentials between labour productivity of local units operating in Ireland. These differentials are evident across regions, industries and between indigenous and foreign owned local units. This paper examines how internal economies of scale and external localization economies and urbanization economies affect labour productivity of local units. Based on secondary microdata from the Census of Local Units in the Census of Industrial Production (CIP) 2009, the paper, firstly, examines the effects of each of the three types of agglomeration economies on labour productivity of local units at NUTS 3 and county levels. In order to eliminate biases associated with transfer pricing in Ireland different measures of labour productivity are used in the analysis. Through the use of interaction terms, the paper then examines the relative importance of the different types of agglomeration economies for indigenous and foreign owned local units at NUTS 3 and county levels. Agglomeration economies are found to have differing effects on labour productivity for indigenous and foreign owned local units. Implications for policymakers are also discussed. This is a significant contribution to the Irish policy debate as O‟Leary (2007) claims that Irish policymakers have focused on localization economies as the only source of agglomeration economies.