Agglomeration of Firms into Technological Districts: the Case of 22@ Project in Barcelona

This paper presents a theoretical analysis of the complex process of agglomeration of firms into technological districts when cities are also competing for them. Positive spillovers tend to make firms locate in the same area, while congestion effects limit this process. Thus, for any given city there exists an optimal number of firms. If there are fewer firms, face competition under increasing returns to scale, with path dependence effects. Hence, if firms are relatively scarce, not all cities will be occupied by firms at the optimal level. The problem of a firm is to choose an optimal city, expecting rational behaviour from other firms. A factor such as office rent depends on city size, while wage costs and spillover effects also depend on the number of firms there. Technological firms choose to agglomerate in those cities where their profits will be maximized after optimal entry. Under certain conditions there exists an equilibrium allocation, where all firms are located in the cities with the best parameters. Since cities are different, their attractiveness also differs. This paper also presents an empirical analysis of the advantages and disadvantages of the emerging technological district 22@ in Barcelona. At present, Barcelona needs state intervention to create a critical mass of technological firms in this area. On the empirical side, we analyse the potential effect of investment in infrastructure in Barcelona in order to improve its attractiveness. In particular, we are interested in the factors that may be responsible for the growing density of technological firms located in 22@ district.