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Localization and Co-Localization within an Urban Area

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  • Stephen Billings

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  • Erik Johnson
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    Abstract

    Urban economists hypothesize that industrial diversity matters for urban growth and development, but metrics for empirically testing this relationship are limited to simple concentration metrics (e.g. location quotient) or summary diversity indices (e.g. Gini, Herfindahl). As shown by recent advances in how we measure localization and specialization, these measures of industrial diversity may be subject to bias under small samples or the Modifiable Areal Unit Problem. Furthermore, empirically examining industrial diversity requires statistically testing for patterns of industry mix that deviate from random firm location. Extending recent work by [S. Billings & E. Johnson. 2012. A Nonparametric Test for Industrial Specialization. Journal of Urban Economics. 71(3):312-331.], we develop a nonparametric microdata based test for industrial co-specialization. Our test employs establishment densities for specific pairs of industries, a population counterfactual, and a new correction for multiple hypothesis testing to determine the statistical significance of co-specialization across both places and industries. The results of these pairwise tests are then mapped out as networks of proximate industries unique to each place within our study area. We use pairs and triads of industries to highlight specific four digit industries that may drive co-specialization and a larger network of industrial diversification. Results give us new understanding of the relationship between industrial co-specialization and urbanization, with manufacturing industries tending to be more co-specialized in less dense areas than business services, while business services show more connected and transitive spatial networks. Finally, we discuss the role that intransitivities in industry triads may play in the econometric identification of co-specialization and underlying place specific agglomerative forces.

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    Bibliographic Info

    Paper provided by European Regional Science Association in its series ERSA conference papers with number ersa12p569.

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    Date of creation: Oct 2012
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    Handle: RePEc:wiw:wiwrsa:ersa12p569

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    1. Mohammad Arzaghi & J. Vernon Henderson, 2008. "Networking off Madison Avenue," Review of Economic Studies, Oxford University Press, vol. 75(4), pages 1011-1038.
    2. 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.
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      • Glaeser, Edward Ludwig & Kallal, Hedi D. & Scheinkman, Jose A. & Shleifer, Andrei, 1992. "Growth in Cities," Scholarly Articles 3451309, Harvard University Department of Economics.
      • Edward L. Glaeser & Hedi D. Kallal & Jose A. Scheinkman & Andrei Shleifer, 1991. "Growth in Cities," NBER Working Papers 3787, National Bureau of Economic Research, Inc.
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    6. 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.
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    9. Octávio Figueiredo & Paulo Guimarães & Douglas Woodward, 2009. "Localization economies and establishment size: was Marshall right after all? -super-†," Journal of Economic Geography, Oxford University Press, Oxford University Press, vol. 9(6), pages 853-868, November.
    10. Stuart S. Rosenthal & William C. Strange, 2003. "Geography, Industrial Organization, and Agglomeration," Center for Policy Research Working Papers, Center for Policy Research, Maxwell School, Syracuse University 56, Center for Policy Research, Maxwell School, Syracuse University.
    11. Thomas Klier & Daniel P. McMillen, 2008. "Evolving Agglomeration In The U.S. Auto Supplier Industry," Journal of Regional Science, Wiley Blackwell, Wiley Blackwell, vol. 48(1), pages 245-267.
    12. Glenn Ellison & Edward L. Glaeser & William Kerr, 2007. "What Causes Industry Agglomeration? Evidence from Coagglomeration Patterns," NBER Working Papers 13068, National Bureau of Economic Research, Inc.
    13. J. Vernon Henderson & Ari Kuncoro & Matthew Turner, 1992. "Industrial Development in Cities," NBER Working Papers 4178, National Bureau of Economic Research, Inc.
    14. Jeffrey R Kling & Jeffrey B Liebman & Lawrence F Katz, 2007. "Experimental Analysis of Neighborhood Effects," Econometrica, Econometric Society, Econometric Society, vol. 75(1), pages 83-119, 01.
    15. McMillen, Daniel P., 2001. "Nonparametric Employment Subcenter Identification," Journal of Urban Economics, Elsevier, vol. 50(3), pages 448-473, November.
    16. Redfearn, Christian L., 2007. "The topography of metropolitan employment: Identifying centers of employment in a polycentric urban area," Journal of Urban Economics, Elsevier, vol. 61(3), pages 519-541, May.
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