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Tales of the city: what do agglomeration cases tell us about agglomeration in general?

Author

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  • Giulia Faggio
  • Olmo Silva
  • William C. Strange
Abstract
This paper considers the heterogeneous microfoundations of agglomeration economies. It studies the co-location of industries to look for evidence of labor pooling, input sharing, and knowledge spillovers. The novel contribution of the paper is that it estimates single-industry models using a common empirical framework that exploits the cross-sectional variation in how one industry co-locates with the other industries in the economy. This unified approach yields evidence on the relative importance of the Marshallian microfoundations at the single-industry level, allowing for like-for-like cross-industry comparisons on the determinants of agglomeration. Using UK data, we estimate such microfoundations models for 97 manufacturing sectors, including the classic agglomeration cases of automobiles, computers, cutlery, and textiles. These four cases - as with all of the individual industry models we estimate - clearly show the importance of the Marshallian forces. However, they also highlight how the importance of these forces varies across industries - implying that extrapolation from cases should be viewed with caution. The paper concludes with an investigation of the pattern of heterogeneity. The degree of an industry's clustering (localization), dynamism, incumbent firm size, and worker education are shown to contribute to the pattern of heterogeneous microfoundations.

Suggested Citation

  • Giulia Faggio & Olmo Silva & William C. Strange, 2019. "Tales of the city: what do agglomeration cases tell us about agglomeration in general?," CEP Discussion Papers dp1619, Centre for Economic Performance, LSE.
    • Handle: RePEc:cep:cepdps:dp1619
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    References listed on IDEAS

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    Cited by:

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    4. Zhao, Zhong & Zheng, Liang, 2023. "The Births of New Private-Owned Enterprises in an Environment of State-Owned Enterprises," IZA Discussion Papers 16259, Institute of Labor Economics (IZA).
    5. Yoann Morin & Lionel Védrine, 2022. "Do agglomeration economies affect firms’ returns to training? Evidence based on French industrial firms," Papers in Regional Science, Wiley Blackwell, vol. 101(5), pages 1135-1156, October.
    6. Fischer, Bruno & Meissner, Dirk & Vonortas, Nicholas & Guerrero, Maribel, 2022. "Spatial features of entrepreneurial ecosystems," Journal of Business Research, Elsevier, vol. 147(C), pages 27-36.
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    8. Steijn, Mathieu P.A. & Koster, Hans R.A. & Van Oort, Frank G., 2022. "The dynamics of industry agglomeration: Evidence from 44 years of coagglomeration patterns," Journal of Urban Economics, Elsevier, vol. 130(C).
    9. Kent Eliasson & Olle Westerlund, 2023. "The urban wage premium and spatial sorting on observed and unobserved ability," Journal of International Economic Law, Oxford University Press, vol. 23(3), pages 601-627.

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    More about this item

    Keywords

    agglomeration; microfoundations; heterogeneity; industrial clusters;
    All these keywords.

    JEL classification:

    • R10 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - General
    • R12 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Size and Spatial Distributions of Regional Economic Activity; Interregional Trade (economic geography)
    • L52 - Industrial Organization - - Regulation and Industrial Policy - - - Industrial Policy; Sectoral Planning Methods
    • L60 - Industrial Organization - - Industry Studies: Manufacturing - - - General

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