Agglomeration dynamics of business services

Abstract

An important characteristic of the economic development in Europe and North America during the last few decades is a fast expansion of the business-service sector. The present paper aims at modeling the location dynamics of three categories of firms: (i) knowledge-intensive business-service firms, (ii) ordinary business-service firms and other firms, where the latter form the rest of the economy. In the theoretical framework, business-service firms have random-choice preferences and respond in a non-linear way to time distances in their contact efforts to customer firms. Business-service firms make their location decisions in response to local, intra-regional and extra-regional access to market demand. The econometric analysis makes use of information about time distances between zones in urban areas as well as between urban areas in the same agglomeration and between urban areas in different agglomerations. The empirical analysis shows how the number of jobs in the different sectors change in response to accessibility to purchasing power. The estimation results show that the change processes feature non-linear dependencies with varying spatial reach.