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Who Needs Agglomeration? Varying Agglomeration Externalities and the Industry Life Cycle

Author

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  • Frank Neffke

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  • Martin Svensson Henning

    ()

  • Ron Boschma

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  • Karl-Johan Lundquist
  • Lars-Olof Olander

Abstract

In this paper, the changing roles of agglomeration externalities during different stages of the industry life cycle are investigated. A central argument is that agglomeration externalities vary with mode of competition, innovation intensity, and characteristics of learning opportunities in industries. Following the Industry Life Cycle perspective, we distinguish between young and mature industries, and investigate how these benefit from MAR, Jacobs’ and Urbanization externalities. The empirical analysis builds on a Swedish plant level dataset that covers the period of 1974-2004.The outcomes of panel data regression models show that the benefits industries derive from their local environment are strongly associated with their stage in the industry life cycle. Whereas MAR externalities increase with the maturity of industries, Jacobs’ externalities decline when industries are more mature. This is in line with the hypothesis that young industries operate in an environment dominated by rapid product innovation and low levels of standardization. Hence, it pays off when knowledge can be sourced locally from many different sources, but there is still little scope for specialization benefits. Mature industries, in contrast, are associated with lower innovation intensities and a focus on cost saving process innovations. Therefore, there are major benefits to be derived from specialization, whereas knowledge spillovers from different industries are less relevant. The distinction between the product competition in young industries and price competition in mature industries is reflected in our finding that high regional factor costs are detrimental to mature industries, but not to young industries. This can also be related to the finding that high quality living environments, attractive for highly paid employees, are important to young industries. Overall, the outcomes stress that industrial life cycles have to be taken into account in the analysis of agglomeration externalities.

Suggested Citation

  • Frank Neffke & Martin Svensson Henning & Ron Boschma & Karl-Johan Lundquist & Lars-Olof Olander, 2008. "Who Needs Agglomeration? Varying Agglomeration Externalities and the Industry Life Cycle," Papers in Evolutionary Economic Geography (PEEG) 0808, Utrecht University, Department of Human Geography and Spatial Planning, Group Economic Geography, revised Apr 2008.
  • Handle: RePEc:egu:wpaper:0808
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    File URL: http://econ.geo.uu.nl/peeg/peeg0808.pdf
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    References listed on IDEAS

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    Cited by:

    1. Tobias Scholl & Thomas Brenner & Martin Wendel, 2016. "Evolving localization patterns of company foundationsEvidence from the German MST-industry," Journal of Evolutionary Economics, Springer, vol. 26(5), pages 1067-1087, December.
    2. Farhauer, Oliver & Kröll, Alexandra, 2009. "Verfahren zur Messung räumlicher Konzentration und regionaler Spezialisierung in der Regionalökonomik," Passauer Diskussionspapiere, Volkswirtschaftliche Reihe V-58-09, University of Passau, Faculty of Business and Economics.
    3. Tobias Scholl & Thomas Brenner & Martin Wendel, 2012. "Evolving localization patterns of company foundations - Evidence from the German MST-industry," Working Papers on Innovation and Space 2012-05, Philipps University Marburg, Department of Geography.
    4. Reinhold Kosfeld, 2012. "Identifying Clusters within R&D Intensive Industries Using Local Spatial Methods," ERSA conference papers ersa12p232, European Regional Science Association.
    5. Tavassoli, Sam, 2015. "Innovation determinants over industry life cycle," Technological Forecasting and Social Change, Elsevier, vol. 91(C), pages 18-32.
    6. Kutsenko, E., 2012. "Path Dependence in Spatial Distribution of Economic Activity: Bad News for Empiric Research of Agglomeration Effects," Journal of the New Economic Association, New Economic Association, vol. 14(2), pages 10-26.
    7. Davidson Natalia & Kislyak Nadezhda & Vorobyev Pavel, 2010. "Spatial Ñoncentration and Firm Performance in Russia," EERC Working Paper Series 10/05e, EERC Research Network, Russia and CIS.
    8. Asheim, Bjørn & M. Bugge, Markus & Coenen, Lars & Herstad, Sverre, 2013. "What Does Evolutionary Economic Geography Bring To The Policy Table? Reconceptualising regional innovation systems," Papers in Innovation Studies 2013/5, Lund University, CIRCLE - Center for Innovation, Research and Competences in the Learning Economy.
    9. Frank M.H. Neffke & Martin Henning & Ron Boschma, 2012. "The impact of aging and technological relatedness on agglomeration externalities: a survival analysis," Journal of Economic Geography, Oxford University Press, vol. 12(2), pages 485-517, March.
    10. Reinhold Kosfeld & Hans-Friedrich Eckey & Jørgen Lauridsen, 2011. "Spatial point pattern analysis and industry concentration," The Annals of Regional Science, Springer;Western Regional Science Association, vol. 47(2), pages 311-328, October.
    11. Nunzia Carbonara, 2012. "Industrial district hetereogeneity and performance: evidence from Italy," Chapters,in: Entrepreneurship, Social Capital and Governance, chapter 4, pages 83-101 Edward Elgar Publishing.

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    Keywords

    agglomeration externalities; industry life cycle; urbanization; Sweden;

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