Co-location of manufacturing and producer services: A simultaneous equations approach

Abstract

This paper investigates the tendencies of co-location between the producer service sector and the manufacturing sector across Swedish functional regions. The employment in these sectors is modeled as being determined simultaneously, i.e. the location of the producer service sector is a function of the location of the manufacturing sector and vice versa. The rationale for the simultaneous approach comes from an assumption of an input-output schedule between the two sectors. Accessibility based on time distances is incorporated into the analysis to allow for inter-regional effects. The findings in this paper suggest that self-organized cluster formations of advanced manufacturing and knowledge intensive producer services can only be expected in urban regions. One important policy implication of the results is that a policy directed towards establishing a cluster of advanced manufacturing and knowledge intensive producer services in a non-urban region should focus on attracting the latter type of industries. The reason is that the results in this paper imply that advanced manufacturing respond to accessibility to knowledge intensive producer service industries while the opposite effect is not present in non-urban regions. JEL classification: R12, L60, L80