Relationship between Agglomeration and Productivity in a Norwegian Context: Estimates for Transport Investment Cost-Benefit Analysis

Cost–benefit analysis (CBA) is an important tool in many countries in the evaluation of transport investments. The main objective of CBA is to allocate society's shared resources by considering all costs and benefits to society as a whole. While direct costs and benefits are often straightforward to calculate, indirect costs and benefits are more challenging to include in a CBA. In relation to indirect benefits, increased attention has been paid to potential productivity benefits for firms that result from reductions in distance to other firms, workers, or customers. The literature on wider economic impacts and agglomeration economies suggests that such benefits usually exist but vary between sectors and nations. However, little consensus seems to exist on the size of the benefits. This paper analyzes the relationship between agglomeration, productivity, and transport investment in a Norwegian context. A total factor productivity approach was used to calculate productivity for 17,000 firms along the weste...