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Testing for Localization Using Micro-Geographic Data


  • Duranton, Gilles
  • Overman, Henry G


To study the detailed location patterns of industries, and particularly the tendency for industries to cluster relative to overall manufacturing, we develop distance-based tests of localization. In contrast to previous studies, our approach allows us to assess the statistical significance of departures from randomness. In addition, we treat space as continuous instead of using an arbitrary collection of geographical units. This avoids problems relating to scale and borders. We apply these tests to an exhaustive UK data set. For four-digit industries, we find that (i) only 51% of them are localized at a 5% confidence level, (ii) localization takes place mostly at small scales below 50 kilometres, (iii) the degree of localization is very skewed, and (iv) industries follow broad sectoral patterns with respect to localization. Depending on the industry, smaller establishments can be the main drivers of both localization and dispersion. Three-digit sectors show similar patterns of localization at small scales as well as a tendency to localize at medium scales.

Suggested Citation

  • Duranton, Gilles & Overman, Henry G, 2002. "Testing for Localization Using Micro-Geographic Data," CEPR Discussion Papers 3379, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:3379

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    References listed on IDEAS

    1. Wagner, Alfred, 1891. "Marshall's Principles of Economics," History of Economic Thought Articles, McMaster University Archive for the History of Economic Thought, vol. 5, pages 319-338.
    2. repec:hal:journl:halshs-00372646 is not listed on IDEAS
    3. Devereux, Michael P. & Griffith, Rachel & Simpson, Helen, 2004. "The geographic distribution of production activity in the UK," Regional Science and Urban Economics, Elsevier, vol. 34(5), pages 533-564, September.
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    8. 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.
    9. Rosenthal, Stuart S. & Strange, William C., 2001. "The Determinants of Agglomeration," Journal of Urban Economics, Elsevier, vol. 50(2), pages 191-229, September.
    10. Eric Marcon & Florence Puech, 2003. "Evaluating the geographic concentration of industries using distance-based methods," Journal of Economic Geography, Oxford University Press, vol. 3(4), pages 409-428, October.
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    More about this item


    clusters; K-density; localization; spatial statistics;

    JEL classification:

    • R12 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Size and Spatial Distributions of Regional Economic Activity; Interregional Trade (economic geography)

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