Agglomeration: A Dynamic Approach

64 Pages Posted: 8 Dec 2014 Last revised: 6 Jan 2015

See all articles by William Walker Hanlon

William Walker Hanlon

University of California, Los Angeles (UCLA) - Department of Economics

Antonio Miscio

Columbia University; Boston Consulting Group

Date Written: December 2014

Abstract

This paper studies the sources of agglomeration economies in cities. We begin by introducing a simple dynamic spatial equilibrium model that incorporates spillovers within and across industries, as well as city-size effects. The model generates a dynamic panel-data estimation equation. We implement the approach using detailed new data describing the industry composition of 31 English cities from 1851-1911. We find that industries grow faster in cities where they have more local suppliers or other occupationally-similar industries. Industries do not grow more rapidly in locations in which they are already large, though there can be exceptions. Thus, dynamic agglomeration appears to be driven by cross-industry effects. Once we control for these cross-industry agglomeration effects, we find a strong negative relationship between city size and city-industry growth. This allows us to construct the first estimate of the aggregate strength of the cross-industry agglomeration forces. Our results suggest a lower bound estimate of the overall strength of agglomeration forces equivalent to a city-size divergence rate of 2.1-3.3 % per decade.

Suggested Citation

Hanlon, William Walker and Miscio, Antonio, Agglomeration: A Dynamic Approach (December 2014). NBER Working Paper No. w20728, Available at SSRN: https://ssrn.com/abstract=2535180

William Walker Hanlon (Contact Author)

University of California, Los Angeles (UCLA) - Department of Economics ( email )

Box 951477
Los Angeles, CA 90095-1477
United States

Antonio Miscio

Columbia University ( email )

Boston Consulting Group ( email )

10 Hudson Yards
New York
New York, NY NY 10001
United States

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