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

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  • Néstor Duch

    ()
    (Institut d'Economia de Barcelona (IEB); Universitat de Barcelona (UB))

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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Bibliographic 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
Date of revision:
Handle: RePEc:ieb:wpaper:223533art101

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Related research

Keywords: Agglomeration; Cost function; Vertical economies;

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  1. J. A. Hausman, 1976. "Specification Tests in Econometrics," Working papers 185, Massachusetts Institute of Technology (MIT), Department of Economics.
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  13. 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.
  14. Lee, Byung-Joo, 1995. "Separability Test for the Electricity Supply Industry," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 10(1), pages 49-60, Jan.-Marc.
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  16. Azzeddine M. Azzam, 1998. "Testing for Vertical Economies of Scope: An Example from US Pig Production," Journal of Agricultural Economics, Wiley Blackwell, vol. 49(3), pages 427-433.
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