Agglomeration, Knowledge Spillovers, and Corporate Investment

Agglomeration is positively correlated with productivity and exhibits substantial heterogeneity across industries. Yet, the connection between agglomeration and corporate investment, an important driver of production, remains relatively underexplored. We study this relation using counterfactuals that account for the empirical distribution of industry size and firm locations, and by employing network methods that exploit firm geographic location and patent citation connections. We find a strong positive relation between industry peers' proximity, investment externalities, uncertainty, and knowledge capital. Collectively, our evidence supports the notion that knowledge spillovers generate positive investment externalities that drive firm location decisions and explain industry-level agglomeration patterns.

Keywords: Agglomeration, Industrial Clustering, Knowledge Spillovers, Innovation, R&D, Investment

JEL Classification: R1, R3, L1, O3

Suggested Citation: Suggested Citation

Grieser, William and Maturana, Gonzalo and Spyridopoulos, Ioannis and Truffa, Santiago, Agglomeration, Knowledge Spillovers, and Corporate Investment (June 24, 2022). Available at SSRN: https://ssrn.com/abstract=2851588 or http://dx.doi.org/10.2139/ssrn.2851588