Marshall at the times of Marshall

In the late nineteenth century, Alfred Marshall identified three micro-foundations of agglomeration economies: labour pooling (LP), input sharing (IO), and knowledge spillovers (KS). An extensive literature has tested the existence of the three Marshallian forces in modern economies. However, there is limited quantitative evidence on the existence of such forces at the times of Marshall. To shed light on these issues, we exploit novel geo-localised census-level data on entrepreneurs and business proprietors retrieved from six consecutive UK Censuses (1851–1911), coupled with census-level workers' data, information on historical patents and historical IO tables. We estimate co-agglomeration models to assess the relative importance of LP, IO, and KS in explaining industrial clustering during Britain's industrialisation. Our results point to a strong role for KS and LP, but only limited evidence for IO. We also show that the strength of the three forces increased over time, and that there is considerable heterogeneity across industries with different characteristics.