What Causes Industry Agglomeration? Evidence from Coagglomeration Patterns

57 Pages Posted: 17 Apr 2007

See all articles by Glenn Ellison

Glenn Ellison

Massachusetts Institute of Technology (MIT) - Department of Economics; National Bureau of Economic Research (NBER)

Edward L. Glaeser

Harvard University - Department of Economics; Brookings Institution; National Bureau of Economic Research (NBER)

William R. Kerr

Harvard University - Entrepreneurial Management Unit

Multiple version iconThere are 2 versions of this paper

Date Written: April 3, 2007

Abstract

Many industries are geographically concentrated. Many mechanisms that could account for such agglomeration have been proposed. We note that these theories make different predictions about which pairs of industries should be coagglomerated. We discuss the measurement of coagglomeration and use data from the Census Bureau's Longitudinal Research Database from 1972 to 1997 to compute pairwise coagglomeration measurements for U.S. manufacturing industries. Industry attributes are used to construct measures of the relevance of each of Marshall's three theories of industry agglomeration to each industry pair: (1) agglomeration saves transport costs by proximity to input suppliers or final consumers, (2) agglomeration allows for labor market pooling, and (3) agglomeration facilitates intellectual spillovers. We assess the importance of the theories via regressions of coagglomeration indices on these measures. Data on characteristics of corresponding industries in the United Kingdom are used as instruments. We find evidence to support each mechanism. Our results suggest that input-output dependencies are the most important factor, followed by labor pooling.

Suggested Citation

Ellison, Glenn David and Glaeser, Edward L. and Kerr, William R., What Causes Industry Agglomeration? Evidence from Coagglomeration Patterns (April 3, 2007). Harvard Institute of Economic Research Discussion Paper No. 2133; US Census Bureau Center for Economic Studies Paper No. CES-WP-07-13. Available at SSRN: https://ssrn.com/abstract=980966 or http://dx.doi.org/10.2139/ssrn.980966

Glenn David Ellison

Massachusetts Institute of Technology (MIT) - Department of Economics ( email )

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Edward L. Glaeser (Contact Author)

Harvard University - Department of Economics ( email )

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National Bureau of Economic Research (NBER)

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William R. Kerr

Harvard University - Entrepreneurial Management Unit ( email )

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