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What Causes Industry Agglomeration? Evidence from Coagglomeration Patterns

  • Glenn Ellison

    ()

    (Masachusetts Institute of Technology, Department of Economics and NBER)

  • Edward L. Glaeser

    ()

    (Harvard University, John F. Kennedy School of Government; Faculty of Arts and Sciences and NBER)

  • William R. Kerr

    ()

    (Harvard Business School, Entrepreneurial Management Unit)

Many industries are geographically concentrated. Many mechanisms that could account for such agglomeration have been proposed. We note that these theories make different predictions about which pairs of industries should be coagglomerated. We discuss the measurement of coagglomeration and use data from the Census Bureau’s Longitudinal Research Database from 1972 to 1997 to compute pairwise coagglomeration measurements for U.S. manufacturing industries. Industry attributes are used to construct measures of the relevance of each of Marshall’s three theories of industry agglomeration to each industry pair: (1) agglomeration saves transport costs by proximity to input suppliers or final consumers, (2) agglomeration allows for labor market pooling, and (3) agglomeration facilitates intellectual spillovers. We assess the importance of the theories via regressions of coagglomeration indices on these measures. Data on characteristics of corresponding industries in the United Kingdom are used as instruments. We find evidence to support each mechanism. Our results suggest that input-output dependencies are the most important factor, followed by labor pooling.

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Paper provided by Harvard Business School in its series Harvard Business School Working Papers with number 07-064.

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Length: 43 pages
Date of creation: Apr 2007
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Handle: RePEc:hbs:wpaper:07-064
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