Testing for Localization Using Micro-Geographic Data

36 Pages Posted: 25 Jun 2002

See all articles by Gilles Duranton

Gilles Duranton

London School of Economics & Political Science (LSE) - Department of Geography and Environment; Centre for Economic Policy Research (CEPR)

Henry G. Overman

London School of Economics (LSE) - Department of Geography and Environment; Centre for Economic Policy Research (CEPR)

Date Written: May 2002

Abstract

To study the detailed location patterns of industries, and particularly the tendency for industries to cluster relative to overall manufacturing, we develop distance-based tests of localization. In contrast to previous studies, our approach allows us to assess the statistical significance of departures from randomness. In addition, we treat space as continuous instead of using an arbitrary collection of geographical units. This avoids problems relating to scale and borders. We apply these tests to an exhaustive UK data set. For four-digit industries, we find that (i) only 51% of them are localized at a 5% confidence level, (ii) localization takes place mostly at small scales below 50 kilometres, (iii) the degree of localization is very skewed, and (iv) industries follow broad sectoral patterns with respect to localization. Depending on the industry, smaller establishments can be the main drivers of both localization and dispersion. Three-digit sectors show similar patterns of localization at small scales as well as a tendency to localize at medium scales.

Keywords: Localization, clusters, K-density, spatial statistics

JEL Classification: R12

Suggested Citation

Duranton, Gilles and Overman, Henry G., Testing for Localization Using Micro-Geographic Data (May 2002). Available at SSRN: https://ssrn.com/abstract=317285

Gilles Duranton (Contact Author)

London School of Economics & Political Science (LSE) - Department of Geography and Environment ( email )

Houghton Street
London, WC2A 2AE
United Kingdom
+44 20 7955 7604 (Phone)
+44 20 7955 7412 (Fax)

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Henry G. Overman

London School of Economics (LSE) - Department of Geography and Environment ( email )

Houghton Street
London, WC2A 2AE
United Kingdom
+44 20 7955 6581 (Phone)
+44 20 7955 7412 (Fax)

Centre for Economic Policy Research (CEPR)

London
United Kingdom

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