This paper estimates agglomeration economies in Great Britain. The analysis employs a definition of urban areas as functional economic units developed by the OECD in collaboration with the European Union to investigate the size and sources of productivity disparities across urban areas. It uses data from the UK Annual Survey of Hours and Earnings and the UK Labour Force Survey between 2000 and 2018 and a two-step estimation procedure that accounts for bias in the extent of agglomeration economies arising from individual sorting. The results suggest that a 10% increase in employment density of a city in Great Britain, would, on average, increase city productivity by 0.9-1 percent. The analysis also shows the estimated elasticity for employment density remains the same before and after the 2007–08 global financial crisis, not showing any clear structural break between city size and productivity relationship.
