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What underlies localization and urbanization economies? Evidence from the location of new firms

Author

Listed:
  • Jordi Jofre-Monseny

    (Universitat de Barcelona & IEB)

  • Raquel Marín-López

    (Universitat de Barcelona & IEB)

  • Elisabet Viladecans-Marsal

    (Universitat de Barcelona & IEB)

Abstract

The objective of this paper is to analyze why firms in some industries locate in specialized economic environments (localization economies) while those in other industries prefer large city locations (urbanization economies). To this end, we examine the location decisions of new manufacturing firms in Spain at the city level and for narrowly defined industries (three-digit level). First, we estimate firm location models to obtain estimates that reflect the importance of localization and urbanization economies in each industry. In a second step, we regress these estimates on industry characteristics that are related to the potential importance of three agglomeration theories, namely, labor market pooling, input sharing and knowledge spillovers. Localization effects are low and urbanization effects are high in knowledge-intensive industries, suggesting that firms (partly) locate in large cities to reap the benefits of inter-industry knowledge spillovers. We also find that localization effects are high in industries that employ workers whose skills are more industry-specific, suggesting that industries (partly) locate in specialized economic environments to share a common pool of specialized workers.

Suggested Citation

  • Jordi Jofre-Monseny & Raquel Marín-López & Elisabet Viladecans-Marsal, 2012. "What underlies localization and urbanization economies? Evidence from the location of new firms," Working Papers 2012/9, Institut d'Economia de Barcelona (IEB).
    • Handle: RePEc:ieb:wpaper:doc2012-9
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    More about this item

    Keywords

    Agglomeration economies; manufacturing industries; localization economies; urbanization economies; specialization;
    All these keywords.

    JEL classification:

    • L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance
    • L60 - Industrial Organization - - Industry Studies: Manufacturing - - - 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)
    • R30 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - General

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