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Concentration, spatial clustering and the size of plants : disentangling the sources of co-location externalities

  • LAFOURCADE, Miren
  • MION, Giordano

Following the model-based approach of Ellison and Glaeser (1997), we develop a framework to test for the link between concentration, spatial clustering and the size of plants. Concentration is an a-spatial concept of variability that can be measured with the standard locational Gini or the more sophisticated Ellison and Glaeser index. By contrast, spatial clustering is directly concerned with distances. Therefore we also use a two-dimensional measure (the Moran index) to identify some specific distance-based patterns. We argue that, in a world where the size of establishments is independent of both concentration and spatial agglomeration, as the standard Dixit-Stiglitz (1977)-Krugman (1980) framework, all the variability in these measures should be accounted for by the variation in the number of plants. Using the Italian 1996 census year data on manufacturing industries, we therefore compare the values and significance of both the EG and Moran indexes computed on an employment and number of plants basis. Our results indicate that, for the majority of Italian manufacturing industries, big plants are much more concentrated than small ones, with size and concentration simultaneously influencing each other. On the other hand, small units are shown to be more spatially correlated, suggesting that different externalities may drive (or may be driven by) concentration and agglomeration patterns according to a size-related basis. These results therefore cast some doubt on the relevance of standard monopolistic frameworks to structurally account for the role of the so-called "pecuniary" externalities compared to more "localized" ones, such as Marshallian, Jacobian or factor endowments based externalities.

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Paper provided by Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) in its series CORE Discussion Papers with number 2003091.

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Date of creation: 00 Dec 2003
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Handle: RePEc:cor:louvco:2003091
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  1. Duranton, Gilles & Henry G Overman, 2003. "Testing for Localisation Using Micro-Geographic Data," Royal Economic Society Annual Conference 2003 69, Royal Economic Society.
  2. Duranton, Gilles & Puga, Diego, 2001. "From Sectoral to Functional Urban Specialization," CEPR Discussion Papers 2971, C.E.P.R. Discussion Papers.
  3. Krugman, Paul, 1980. "Scale Economies, Product Differentiation, and the Pattern of Trade," American Economic Review, American Economic Association, vol. 70(5), pages 950-59, December.
  4. Thomas J. Holmes & John J. Stevens, 2002. "Geographic concentration and establishment size: analysis in an alternative economic geography model," Finance and Economics Discussion Series 2002-17, Board of Governors of the Federal Reserve System (U.S.).
  5. Gilles Duranton & Diego Puga, 2000. "Nursery cities: urban diversity, process innovation and the life-cycle of products," LSE Research Online Documents on Economics 20204, London School of Economics and Political Science, LSE Library.
  6. Glenn Ellison & Edward L. Glaeser, 1999. "The Geographic Concentration of Industry: Does Natural Advantage Explain Agglomeration?," Harvard Institute of Economic Research Working Papers 1862, Harvard - Institute of Economic Research.
  7. 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.
  8. BARRIOS, Salvador & BERTINELLI, Luisito & STROBL, Eric & TEIXEIRA, Antonio Carlos, 2003. "Agglomeration economies and the location of industries: a comparison of three small European countries," CORE Discussion Papers 2003067, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  9. Ellison, G. & Glaeser, E.L., 1994. "Geographic Concentration in U.S. Manufacturing Industries: A Dartboard Approach," Working papers 94-27, Massachusetts Institute of Technology (MIT), Department of Economics.
  10. Holmes, Thomas J. & Stevens, John J., 2004. "Spatial distribution of economic activities in North America," Handbook of Regional and Urban Economics, in: J. V. Henderson & J. F. Thisse (ed.), Handbook of Regional and Urban Economics, edition 1, volume 4, chapter 63, pages 2797-2843 Elsevier.
  11. 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.
  12. Maurel, Francoise & Sedillot, Beatrice, 1999. "A measure of the geographic concentration in french manufacturing industries," Regional Science and Urban Economics, Elsevier, vol. 29(5), pages 575-604, September.
  13. Combes, Pierre-Philippe & Overman, Henry G., 2004. "The spatial distribution of economic activities in the European Union," Handbook of Regional and Urban Economics, in: J. V. Henderson & J. F. Thisse (ed.), Handbook of Regional and Urban Economics, edition 1, volume 4, chapter 64, pages 2845-2909 Elsevier.
  14. BARRIOS, Salvador & BERTINELLI, Luisito & STROBL, Eric, 2003. "Geographic concentration and establishment scale: can panel data tell us more ?," CORE Discussion Papers 2003036, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
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