City Research Online

Abstract

This paper considers the heterogeneous microfoundations of agglomeration economies. It studies the co-location of industries to look for evidence of labor pooling, input sharing, and knowledge spillovers. The novel contribution of the paper is that it estimates single-industry models using a common empirical framework that exploits the cross-sectional variation in how one industry co-locates with the other industries in the economy. This unified approach yields evidence on the relative importance of the Marshallian microfoundations at the single-industry level, allowing for like-for-like cross-industry comparisons on the determinants of agglomeration. Using UK data, we estimate such microfoundations models for 97 manufacturing sectors, including the classic agglomeration cases of automobiles, computers, cutlery, and textiles. These four cases – as with all of the individual industry models we estimate – clearly show the importance of the Marshallian forces. However, they also highlight how the importance of these forces varies across industries – implying that extrapolation from cases should be viewed with caution. The paper concludes with an investigation of the pattern of heterogeneity. The degree of an industry’s clustering (localization), dynamism, incumbent firm size, and worker education are shown to contribute to the pattern of heterogeneous microfoundations.

Publication Type:	Monograph (Discussion Paper)
Additional Information:	©2019, the authors.
Publisher Keywords:	Agglomeration; microfoundations; heterogeneity; industrial clusters
Subjects:	H Social Sciences > HD Industries. Land use. Labor
Departments:	School of Policy & Global Affairs > Economics > Discussion Paper Series School of Policy & Global Affairs > Economics

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