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Firm Location and the Creation and Utilization of Human Capital

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  • Andres Almazan
  • Adolfo de Motta
  • Sheridan Titman

Abstract

This paper presents a theory of location choice that draws on insights from the incomplete contracts and investment flexibility (real option) literatures. We provide conditions under which human capital is more efficiently created and better utilized within industrial clusters that contain similar firms. Our analysis indicates that location choices are influenced by the extent to which training costs are borne by firms versus employees as well as by the uncertainty about future productivity shocks and the ability of firms to modify the scale of their operations. Extensions of our model consider, among other things, endogenous technological choices by firms in clusters and how behavioral biases (i.e., managerial overconfidence about their firms' prospects) can affect firms' location choices.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 10106.

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Date of creation: Nov 2003
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Publication status: published as Andres Almazan & Adolfo De Motta & Sheridan Titman, 2007. "Firm Location and the Creation and Utilization of Human Capital," Review of Economic Studies, Blackwell Publishing, vol. 74(4), pages 1305-1327, October.
Handle: RePEc:nbr:nberwo:10106

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  1. Guy Dumais & Glenn Ellison & Edward L Glaeser, 1998. "Geographic Concentration as a Dynamic Process," Working Papers 98-3, Center for Economic Studies, U.S. Census Bureau.
  2. McLaren, J., 1996. "'Globalization' and Vertical Structure," Discussion Papers, Columbia University, Department of Economics 1996_21, Columbia University, Department of Economics.
  3. Mortensen, Dale T. & Pissarides, Christopher A., 1999. "New developments in models of search in the labor market," Handbook of Labor Economics, Elsevier, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 39, pages 2567-2627 Elsevier.
  4. Ellison, Glenn & Glaeser, Edward L, 1997. "Geographic Concentration in U.S. Manufacturing Industries: A Dartboard Approach," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 105(5), pages 889-927, October.
  5. Grossman, Sanford J & Hart, Oliver D, 1986. "The Costs and Benefits of Ownership: A Theory of Vertical and Lateral Integration," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 94(4), pages 691-719, August.
  6. Hart, Oliver & Moore, John, 1994. "A Theory of Debt Based on the Inalienability of Human Capital," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 109(4), pages 841-79, November.
  7. Helsley, Robert W. & Strange, William C., 1990. "Matching and agglomeration economies in a system of cities," Regional Science and Urban Economics, Elsevier, Elsevier, vol. 20(2), pages 189-212, September.
  8. Rauch, James E, 1993. "Does History Matter Only When It Matters Little? The Case of City-Industry Location," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 108(3), pages 843-67, August.
  9. Combes, Pierre-Philippe & Duranton, Gilles, 2006. "Labour pooling, labour poaching, and spatial clustering," Regional Science and Urban Economics, Elsevier, Elsevier, vol. 36(1), pages 1-28, January.
  10. Duranton, Gilles & Puga, Diego, 2003. "Microfoundations of Urban Agglomeration Economies," CEPR Discussion Papers, C.E.P.R. Discussion Papers 4062, C.E.P.R. Discussion Papers.
  11. Thomas J. Holmes & John J. Stevens, 2002. "Geographic Concentration and Establishment Scale," The Review of Economics and Statistics, MIT Press, vol. 84(4), pages 682-690, November.
  12. Ciccone, Antonio & Hall, Robert E, 1996. "Productivity and the Density of Economic Activity," American Economic Review, American Economic Association, American Economic Association, vol. 86(1), pages 54-70, March.
  13. Edward L. Glaeser & Glenn Ellison, 1999. "The Geographic Concentration of Industry: Does Natural Advantage Explain Agglomeration?," American Economic Review, American Economic Association, American Economic Association, vol. 89(2), pages 311-316, May.
  14. Henderson, J. Vernon, 1986. "Efficiency of resource usage and city size," Journal of Urban Economics, Elsevier, vol. 19(1), pages 47-70, January.
  15. Matouschek, Niko & Robert-Nicoud, Frédéric, 2003. "The Role of Human Capital Investments in the Location Decisions of Firms," CEPR Discussion Papers, C.E.P.R. Discussion Papers 3875, C.E.P.R. Discussion Papers.
  16. Rotemberg, Julio J. & Saloner, Garth, 2000. "Competition and human capital accumulation: a theory of interregional specialization and trade," Regional Science and Urban Economics, Elsevier, Elsevier, vol. 30(4), pages 373-404, July.
  17. Helsley, Robert W. & Strange, William C., 1991. "Agglomeration economies and urban capital markets," Journal of Urban Economics, Elsevier, vol. 29(1), pages 96-112, January.
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Cited by:
  1. Matouschek, Niko & Robert-Nicoud, Frédéric, 2003. "The Role of Human Capital Investments in the Location Decisions of Firms," CEPR Discussion Papers, C.E.P.R. Discussion Papers 3875, C.E.P.R. Discussion Papers.
  2. Brunello, Giorgio & Gambarotto, Francesca, 2007. "Do spatial agglomeration and local labor market competition affect employer-provided training? Evidence from the UK," Regional Science and Urban Economics, Elsevier, Elsevier, vol. 37(1), pages 1-21, January.
  3. Brunello, Giorgio & Gambarotto, Francesca, 2004. "Agglomeration Effects on Employer-Provided Training: Evidence from the UK," IZA Discussion Papers 1055, Institute for the Study of Labor (IZA).
  4. Zheng Shi & Zheng Wen & Jin Xia, 2010. "A Simple, Analytically Solvable, Dual-Space Economic Agglomerations Model," Networks and Spatial Economics, Springer, Springer, vol. 10(2), pages 261-271, June.

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