Location Strategies for Agglomeration Economies

Juan Alcacer () and Wilbur Chung ()
Additional contact information
Juan Alcacer: Harvard Business School, Strategy Unit
Wilbur Chung: R.H. Smith School of Business, University of Maryland

No 10-071, Harvard Business School Working Papers from Harvard Business School

Abstract: Geographically concentrated industry activity creates pools of skilled labor and specialized suppliers, and increases opportunities for knowledge spillovers. The strategic value of these agglomeration economies may vary by firm, depending upon the relative value of each economy, and upon firm and agglomeration economy traits. To better determine when a firm will be attracted to agglomeration economies, we develop a three-layer framework. The first layer assesses the relative importance of skilled labor, suppliers, and knowledge spillovers. The second layer considers whether firms can benefit from geographic concentration without co-locating. The final layer examines why some firms are more inclined to co-locate than others based upon firm and agglomeration economy traits. We test our framework on the U.S. location choices of new manufacturing entrants between 1985 and 1994 and find that firms are far more attracted to skilled labor and specialized suppliers than they are to potential knowledge spillovers, even in R&D intensive industries. We also find that leading firms will be more attracted to pools of labor, suppliers, and potential knowledge spillovers when their own contributions are less fungible, and cannot be easily leveraged for strategic advantage by proximate competitors.

Keywords: agglomeration economies; location choice; firm strategy (search for similar items in EconPapers)
JEL-codes: L21 R12 R30 (search for similar items in EconPapers)
Pages: 38 pages
Date: 2010-02
New Economics Papers: this item is included in nep-cse, nep-geo and nep-ure
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Citations: View citations in EconPapers (7)

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