How important is geography for agglomeration?

Abstract

In this paper, I examine the influence of natural geographic features on the location of production in Germany. In particular, I quantify how much of the geographic pattern of GDP can be attributed to natural features such as resource endowments and location (‘geography’). At most, ∼36% of GDP's spatial variation can be explained by direct and indirect effects of geography. After controlling for agglomeration economies and the interaction effect of geography and agglomeration economies, the net influence of geography is only about 7%.

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