Agglomeration, Coordination, and Corporate Investment
59 Pages Posted: 13 Oct 2016 Last revised: 10 Nov 2017
Date Written: November 10, 2017
Firm clustering is positively correlated with productivity, and it exhibits significant variation across industries. Yet, the connection between clustering and corporate investment remains underexplored. We develop a model of information sharing which predicts that knowledge-intensive industries and industries with more uncertainty gain the most from clustering due to the subsequent improvement in project selection. Accounting for nonrandom location decisions, we find a strong positive relationship between (a) industry uncertainty and knowledge intensity and (b) the proximity of headquarters, patent inventors, and customer--suppliers. Similarity in the timing and level of investment expenditures is also positively related to proximity and uncertainty/knowledge-intensity.
Keywords: Agglomeration, Industrial Clustering, Knowledge Spillovers, Innovation, R&D, Investment, Customer--Supplier
JEL Classification: R1, R3, L1, O3
Suggested Citation: Suggested Citation