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Marshall’s Scale Economies and Jacobs’ Externality in Korea: the Role of Age, Size and the Legal Form of Organisation of Establishments


  • Bun Song Lee

    (Bun Song Lee is in the College of Business, Northwestern State University, 306A Russell Hall, Natchitoches, Louisiana, 71497, USA,

  • Soomyung Jang

    (Soomyung Jang is in the Graduate School of Educational Policy and Administration, Korea National University of Education, San 7 Darak-ri, Gangnae-myeon, Cheonwongun, Chungbuk, 363-791, Korea,

  • Sung Hyo Hong

    (Sung Hyo Hong is in the Department of Economics, Syracuse University, 131 Eggers Hall, Syracuse, New York, 13224, USA,


This paper revisits the concept of agglomeration economies by estimating the effects of localisation, urbanisation and local competition on labour productivity using establishment-level data in Korean manufacturing industries. It is found that, when an establishment locates in a more localised/specialised, more urbanised/diversified and more competitive area, its workers become more productive due to external benefits from agglomeration. Issues of self-selection bias and omitted variable bias are addressed by instrumenting the variables measuring localisation economies and controlling for the fixed effects of establishments/location and industries/year. However, the external effects from the spatial proximity of other establishments vary across the categories of industry type, age, size and legal form of organisation of establishments. Establishments in traditional heavy manufacturing industries receive more external benefits in a less diversified area, while those in transport equipment manufacturing industries enjoy the largest benefits from localisation. Externalities exist for establishments aged between 2 and 7 years, having at least 10 workers, being corporate and having multiplants (or not being headquarters). Establishments in relatively young industries rely more on diversified environments, while establishments in relatively old industries receive greater external benefits in the same industry cluster. This result supports the product life-cycle location theory of Duranton and Puga.

Suggested Citation

  • Bun Song Lee & Soomyung Jang & Sung Hyo Hong, 2010. "Marshall’s Scale Economies and Jacobs’ Externality in Korea: the Role of Age, Size and the Legal Form of Organisation of Establishments," Urban Studies, Urban Studies Journal Limited, vol. 47(14), pages 3131-3156, December.
  • Handle: RePEc:sae:urbstu:v:47:y:2010:i:14:p:3131-3156

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    References listed on IDEAS

    1. Epstein, Gil S., 2002. "Informational Cascades and Decision to Migrate," IZA Discussion Papers 445, Institute for the Study of Labor (IZA).
    2. Louis de Mesnard, 2004. "Biproportional Methods of Structural Change Analysis: A Typological Survey," Economic Systems Research, Taylor & Francis Journals, vol. 16(2), pages 205-230.
    3. Rouwendal, Jan, 1999. "Spatial job search and commuting distances," Regional Science and Urban Economics, Elsevier, vol. 29(4), pages 491-517, July.
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    Cited by:

    1. Combes, Pierre-Philippe & Gobillon, Laurent, 2015. "The Empirics of Agglomeration Economies," Handbook of Regional and Urban Economics, Elsevier.
    2. Ganau, Roberto & Rodr�guez-Pose, Andr�s, 2017. "Industrial Clusters, Organized Crime and Productivity Growth in Italian SMEs," CEPR Discussion Papers 12140, C.E.P.R. Discussion Papers.
    3. Crafts, Nicholas & Klein, Alexander, 2015. "Agglomeration Economies and Productivity Growth: U.S. Cities, 1880-1930," CEPR Discussion Papers 10673, C.E.P.R. Discussion Papers.

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