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Vertical linkages, agglomeration and the organization of production in European regions

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Author Info
Néstor Duch () (Institut d'Economia de Barcelona (IEB); Universitat de Barcelona (UB))

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Abstract

In this paper we test for the presence of localisation economies due to input-output linkages between vertically related firms located in the same region. To undertake this we estimate, by duality, a quadratic cost function using a sector by sector panel at the European regional level in the period 1985-1995. Vertical economies are derived from the concept of scope economies and associated to regional advantages of having in the proximity specialised providers of intermediate goods. Several specifications are tested and results indicate that the necessary conditions for the existence of economies of vertical disintegration are satisfied as well as the sufficient conditions for some sectors, showing that vertical diseconomies are stronger for the more geographically concentrated industries. These effects are not pervasive since there are also opportunities for efficiency gains from a more vertically integrated production for some sectors in several regions.

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Publisher Info
Paper provided by Institut d'Economia de Barcelona (IEB) in its series Working Papers with number 2005/6.

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Length: 42 pages
Date of creation: 2005
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Handle: RePEc:ieb:wpaper:223533art101

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Related research
Keywords: Agglomeration; Cost function; Vertical economies;

Find related papers by JEL classification:
L23 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Organization of Production
L60 - Industrial Organization - - Industry Studies: Manufacturing - - - General
R12 - Urban, Rural, and Regional Economics - - General Regional Economics - - - Size and Spatial Distributions of Regional Economic Activity; Interregional Trade (economic geography)
R15 - Urban, Rural, and Regional Economics - - General Regional Economics - - - Econometric and Input-Output Models; Other Methods

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  7. David E. Bloom & David Canning & Jaypee Sevilla, 2001. "The Effect of Health on Economic Growth: Theory and Evidence," NBER Working Papers 8587, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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    Other versions:
  9. Breusch, T S & Pagan, A R, 1980. "The Lagrange Multiplier Test and Its Applications to Model Specification in Econometrics," Review of Economic Studies, Blackwell Publishing, vol. 47(1), pages 239-53, January. [Downloadable!] (restricted)
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  11. Hausman, Jerry A, 1978. "Specification Tests in Econometrics," Econometrica, Econometric Society, vol. 46(6), pages 1251-71, November. [Downloadable!] (restricted)
  12. Thomas J. Holmes, 1999. "Localization Of Industry And Vertical Disintegration," The Review of Economics and Statistics, MIT Press, vol. 81(2), pages 314-325, May. [Downloadable!] (restricted)
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  13. Stephen Redding & Mercedes Vera-Martin, 2001. "Factor Endowments and Production in European Regions," CEP Discussion Papers dp0501, Centre for Economic Performance, LSE. [Downloadable!]
    Other versions:
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