Heterogeneous agglomeration

Many prior treatments of agglomeration explicitly or implicitly assume that all industries agglomerate for the same reasons, with the traditional Marshallian (1890) factors of input sharing, labor pooling, and knowledge spillovers affecting all industries similarly. An important instance of this approach is the extrapolation from one key sector to the larger economy, such as the drawing of very general lessons about agglomeration from the specific case of the Silicon Valley. Another is the pooling of data to examine common tendencies in agglomeration even across very different industries. This paper uses UK establishment-level data on coagglomeration to document substantial heterogeneity across industries in the microfoundations of agglomeration economies. The analysis shows that the Marshallian factors interact with the organizational and adaptive aspects of agglomeration discussed by Chinitz (1961), Vernon (1960), and Jacobs (1969). Our findings highlight the importance of treating Marshall’s microfoundations of agglomeration as complements to the analysis of Jacobs and others, rather than as alternatives.