What Causes Industry Agglomeration? Evidence from Coagglomeration Patterns

Glenn Ellison (), Edward L. Glaeser () and William Kerr ()
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Edward L. Glaeser: Harvard University, John F. Kennedy School of Government; Faculty of Arts and Sciences and NBER

No 07-064, Harvard Business School Working Papers from Harvard Business School

Abstract: 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.

New Economics Papers: this item is included in nep-geo and nep-ure
Date: 2007-04
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Working Paper: What Causes Industry Agglomeration? Evidence from Coagglomeration Patterns (2007)
Working Paper: What Causes Industry Agglomeration? Evidence from Coagglomeration Patterns (2007)
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