Geographic Concentration and Firm Survival
34 Pages Posted: 19 Aug 2011 Last revised: 31 Aug 2011
Date Written: August 19, 2011
If localization economies are present, firms within denser industry concentrations should exhibit higher levels of performance than more isolated firms. Nevertheless, research in industrial organization that has focused on the influences on firm survival has largely ignored the potential effects from agglomeration. Recent studies in urban and regional economics suggests that agglomeration effects may be very localized. Analyses of industry concentration at the MSA or county-level may fail to detect important elements of intra-industry firm interaction that occur at the sub-MSA level. Using a highly detailed dataset on firm locations and characteristics for Texas, this paper analyses agglomeration effects on firm survival over geographic areas as small as a single mile radius. We find that greater firm density within very close proximity (within 1 mile) of firms in the same industry increases mortality rates while greater concentration over larger distances reduces mortality rates.
Keywords: Firm Survival, Agglomeration, Localization, and Knowledge Externalities
JEL Classification: R12, O18
Suggested Citation: Suggested Citation