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Who Needs Agglomeration? Varying Agglomeration Externalities and the Industry Life Cycle

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Author Info

  • Frank Neffke

    ()

  • Martin Svensson Henning

    ()

  • Ron Boschma

    ()

  • Karl-Johan Lundquist
  • Lars-Olof Olander

Abstract

In this paper, the changing roles of agglomeration externalities during different stages of the industry life cycle are investigated. A central argument is that agglomeration externalities vary with mode of competition, innovation intensity, and characteristics of learning opportunities in industries. Following the Industry Life Cycle perspective, we distinguish between young and mature industries, and investigate how these benefit from MAR, Jacobs’ and Urbanization externalities. The empirical analysis builds on a Swedish plant level dataset that covers the period of 1974-2004.The outcomes of panel data regression models show that the benefits industries derive from their local environment are strongly associated with their stage in the industry life cycle. Whereas MAR externalities increase with the maturity of industries, Jacobs’ externalities decline when industries are more mature. This is in line with the hypothesis that young industries operate in an environment dominated by rapid product innovation and low levels of standardization. Hence, it pays off when knowledge can be sourced locally from many different sources, but there is still little scope for specialization benefits. Mature industries, in contrast, are associated with lower innovation intensities and a focus on cost saving process innovations. Therefore, there are major benefits to be derived from specialization, whereas knowledge spillovers from different industries are less relevant. The distinction between the product competition in young industries and price competition in mature industries is reflected in our finding that high regional factor costs are detrimental to mature industries, but not to young industries. This can also be related to the finding that high quality living environments, attractive for highly paid employees, are important to young industries. Overall, the outcomes stress that industrial life cycles have to be taken into account in the analysis of agglomeration externalities.

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Bibliographic Info

Paper provided by Utrecht University, Section of Economic Geography in its series Papers in Evolutionary Economic Geography (PEEG) with number 0808.

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Length: 34 pages
Date of creation: Apr 2008
Date of revision: Apr 2008
Handle: RePEc:egu:wpaper:0808

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Related research

Keywords: agglomeration externalities; industry life cycle; urbanization; Sweden;

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Citations

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Cited by:
  1. Kutsenko, E., 2012. "Path Dependence in Spatial Distribution of Economic Activity: Bad News for Empiric Research of Agglomeration Effects," Journal of the New Economic Association, New Economic Association, vol. 14(2), pages 10-26.
  2. Tavassoli, Sam, 2013. "Innovation Determinants over Industry Life Cycle," CIRCLE Electronic Working Papers 2013/42, Lund University, CIRCLE - Center for Innovation, Research and Competences in the Learning Economy.
  3. Ron Boschma & Martin Henning & Frank Neffke, 2009. "The impact of aging and technological relatedness on agglomeration externalities: a survival analysis," LSE Research Online Documents on Economics 33498, London School of Economics and Political Science, LSE Library.
  4. Tobias Scholl & Thomas Brenner & Martin Wendel, 2012. "Evolving localization patterns of company foundations - Evidence from the German MST-industry," Working Papers on Innovation and Space 2012-05, Philipps University Marburg, Department of Geography.
  5. Reinhold Kosfeld, 2012. "Identifying Clusters within R&D Intensive Industries Using Local Spatial Methods," ERSA conference papers ersa12p232, European Regional Science Association.
  6. Reinhold Kosfeld & Hans-Friedrich Eckey & Jørgen Lauridsen, 2011. "Spatial point pattern analysis and industry concentration," The Annals of Regional Science, Springer, vol. 47(2), pages 311-328, October.
  7. Farhauer, Oliver & Kröll, Alexandra, 2009. "Verfahren zur Messung räumlicher Konzentration und regionaler Spezialisierung in der Regionalökonomik," Passauer Diskussionspapiere, Volkswirtschaftliche Reihe V-58-09, University of Passau, Faculty of Business and Economics.
  8. Asheim, Bjørn & M. Bugge, Markus & Coenen, Lars & Herstad, Sverre, 2013. "What Does Evolutionary Economic Geography Bring To The Policy Table? Reconceptualising regional innovation systems," CIRCLE Electronic Working Papers 2013/5, Lund University, CIRCLE - Center for Innovation, Research and Competences in the Learning Economy.

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