Agglomeration, Knowledge Spillovers, and Corporate Investment
33 Pages Posted: 13 Oct 2016 Last revised: 8 Aug 2022
Date Written: June 24, 2022
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