Which places grow faster? An empirical analysis of employment growth factors at the local level for the Spanish economy

The objective of this work is to study employment growth and its determinants in Spain at a high degree of spatial disaggregation. The impossibility of obtaining GDP data at the local scale makes this a particularly interesting issue, as employment growth can be used as a proxy for local economic growth—and can therefore be expected to provide some insight into the factors associated with local economic performance. Based upon the theories of New Economic Geography (NEG), we first analyse the influence of population size and location on employment growth. As well as considering the Euclidean distance to the main metropolitan areas—the traditional way to control for distance—we also consider the incremental distances, a novel approach that connects this work with the literature on the hierarchy of cities. We also examine the traditional socio-economic growth factors such as education, degree of diversification and sectoral structure. Results show that geographical factors in Spain are especially relevant in the understanding of local employment growth, explaining better than traditional socio-economic characteristics why some areas grow faster. We also examine how different are the patterns of rural and urban areas and introduce spatial auto-regressive models.