What Causes Industry Agglomeration? Evidence from Coagglomeration Patterns

56 Pages Posted: 27 Jun 2007 Last revised: 17 Sep 2010

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 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 2007). NBER Working Paper No. w13068. Available at SSRN: https://ssrn.com/abstract=986918

Glenn David Ellison (Contact Author)

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

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Edward L. Glaeser

Harvard University - Department of Economics ( email )

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William R. Kerr

Harvard University - Entrepreneurial Management Unit ( email )

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