Role Of Agglomeration Economies Research Articles

Managing where you are: agglomeration economies, managerial industry experience and innovation in South-East Asia

ABSTRACT It is well-established that firms leverage both internal and external resources for their innovation activities. Even though the role of agglomeration economies in shaping the external resources available to firms has been particularly well-studied it is still unclear whether it is diversity or specialisation within agglomerations that drives firm innovativeness. We suggest that both do but that their relations with firm innovativeness are moderated by managerial industry experience. Using data from four South-East Asian economies we find that managers with more industry experience are better able to make the most of where they are, leveraging the opportunities afforded by their geographic environment. This finding is most pronounced in rural areas where firms with inexperienced managers almost never innovate, whereas half of the firms with experienced managers do. This suggests that future agglomeration research should be attentive to firm-level idiosyncrasies.

Agglomeration Economies: An Analysis of the Determinants of Employment in the Cities of Ecuador

The objective of this investigation is to study the role of agglomeration economies (manufacturing) in urban employment growth, as a proxy for economic growth, between 1980 and 2010 in Ecuador. The three measures of agglomeration-specialization, diversity, and density-are tested to determine their effect on employment growth in industries. The empirical analysis is based on firm- and city-level data from manufacturing activities. A model is proposed to estimate the effect of agglomeration economies on the growth of employment and a regression is conducted using instrumental variables. In particular, the two-stage least squares (2SLS) estimator is used. We conclude that localization economies measured by a specialization index have a positive impact on the growth of employment in the period analyzed. The results are similar to those obtained by other work carried out both in developed and developing countries.

Regional economic divergence and house prices: a comparison of Germany and the UK

PurposeIncreasing regional wealth disparities have been explained by the role of agglomeration economies and the concentration of skilled mobile human capital. This paper aims to draw out the role of the housing market by considering the differential experience of Germany and the UK.Design/methodology/approachThe empirical analysis is based on the comparison of regional house price trends in Germany and UK-based annual data from 1991 to 2015.FindingsRegional house price inequality is found to have increased in both countries with the spatial concentration of skilled human capital. However, the main conclusion is that there are differential paths to regional house price inequality explained by the parameters of each country’s housing market.Originality/valueThe research is the first to compare and explain differential regional house price trends across countries.

Top manager characteristics, agglomeration economies and firm performance

The role of agglomeration economies in firm performance has been extensively studied. Existing studies, however, almost invariably focus on firm, industry or city characteristics to examine the performance-enhancing effects of agglomeration while overlooking the attributes of the top executives involved in shaping corporate practices. In this study, we change that focus by empirically examining the moderating role of two particular top manager characteristics (age and educational level) on the agglomeration economies–firm performance relationship. Using a top manager-firm matched panel data set, we find that top manager age rather than educational level helps firms to realize the potential benefits of agglomeration. This paper contributes to the agglomeration literature by stating the importance of individual top managers.

Regional Characteristics, Industry Agglomeration and Location Choice: Evidence from Japanese Manufacturing Investments in Korea*

Using extensive firm-level data for the years 1998–2006, we analyze the regional location decision of Japanese manufacturing foreign direct investors in Korea by focusing on the role of agglomeration economies. Our logit estimates indicate that horizontal agglomeration matters in the location decision, but vertical agglomeration does not. Strong evidence of country-of-origin effects is found. Japanese foreign direct investments in high-technology industries show a typical ‘follow-the-leader’ pattern, while those in the in low-technology industries are influenced by regional endowments. In addition, Japan's high-technology firms are likely to prefer urban locations so that they can enjoy the externalities of business services.

Internal migration, regional labor markets and the role of agglomeration economies

We analyze the determinants and regional implications of internal migration flows across Danish municipalities in 2006–2012. Besides assessing the role of labor market and housing market factors in driving a region’s net migration rate, we particularly focus on agglomeration factors identified by “new” migration theories related to regional growth models and the new economic geography. The work contributes to the field in the following way: we extend the scarce literature on the different channels through which agglomeration economies act as an attractor for mobile labor. Moreover, we account for the role of space–time dynamic adjustment processes and simultaneity among migration and labor market variables and finally test for heterogeneity in the migration response to regional labor market disparities among low- and high-skilled migrants. Our results support the view that agglomeration economies are indeed key drivers of internal migration flows in Denmark. That is, while we obtain mixed evidence with regard to the role of traditional labor and housing market variables, most of the included proxies for agglomeration economies such as the region’s population density, patent intensity, endowment with human capital as well as the region’s employment share of knowledge-intensive services are positively correlated with the region’s net in-migration rate. Regarding the regional implications of internal migration flows, the results hint at a process of cumulative causation for the time period of analysis running from agglomeration economies to the inflow of mobile labor and subsequent regional income development.

Entrepreneurship in a Hub-and-Spoke Industrial District: Firm Survey Evidence from Seattle's Technology Industry

Mayer H. Entrepreneurship in a hub-and-spoke industrial district: firm survey evidence from Seattle's technology industry, Regional Studies. The paper investigates entrepreneurial dynamics in a hub-and-spoke industrial district. Using data on the genealogy of high-technology firms in Seattle, Washington State, the study examines the ways in which entrepreneurial firms relate to their parent firms and the role of agglomeration economies. The results illustrate that entrepreneurship is an important vehicle for the diversification of such a district. When compared, hub-related spinoffs such as those founded by former Microsoft employees do not differ much from other start-ups. The differences between Microsoft spinoffs and start-ups are very limited; both diversify the regional economy by entering new markets when compared with their parents.

Environmental Innovations, Local Networks and Internationalization

This paper investigates the forces correlated with environmental innovations (EIs) introduced by firms in local production systems (LPS). The role of inter-firm network relationships, agglomeration economies and internationalization strategies is jointly analysed for a sample of 555 firms in the Emilia–Romagna (ER) region (North-East Italy). Cooperating with a certain kind of local actors—i.e. suppliers and universities—is the most important EI driver for the investigated firms, along with their training coverage and their adoption of information and communication technologies. The role of agglomeration economies is instead less clear-cut. They spur EIs only in the presence of established LPS, with idiosyncratic sector specialization, while conversely they act as EI barriers. Networking effects and agglomeration economies are instead found to strongly promote the adoption of EIs by multinational firms, thus highlighting the importance of local–global interactions. Interesting specifications for these results are found for particular kinds of EIs, in such fields as CO2 abatement and ISO labelling, generally extending the analysis of EI drivers by joining local and international factors. In addition, the role of regulatory sector factors confirms the induced innovation hypothesis and provides a robustness check to our results.

Environmental Innovations, Local Networks and Internationalization

This paper investigates the drivers of the environmental innovations (EI) introduced by firms in local production systems (LPS). The role of firm network relationships, agglomeration economies and internationalization strategies is analysed for a sample of 555 firms in the Emilia-Romagna region, North-East of Italy. Cooperating with ‘qualified’ local actors – i.e. universities and suppliers – is the most important driver of EI for most firms, along with their training policies and IT innovations. The role of agglomeration economies is less clear and seems to depend on the EI propensity of more locally oriented firms playing in district areas, which might even turn agglomeration into dis-economies. Networking effects and agglomeration economies are instead found to strongly promote the adoption of EI by multinational firms, thus highlighting the importance of local-global interactions. We provide some interesting findings for particular kinds of challenging EI in fields as CO2 abatement and ISO labelling, generally extending the analysis EI driver by joining local and international factors.

Technological Adaptation, Cities, and New Work

Where does adaptation to innovation take place? The author presents evidence on the role of agglomeration economies in the application of new knowledge to production. All else equal, workers are more likely to be observed in new work in locations that are initially dense in both college graduates and industry variety. This pattern is consistent with economies of density from the geographic concentration of factors and markets related to technological adaptation. A main contribution is to use a new measure, based on revisions to occupation classifications, to closely characterize cross-sectional differences across U.S. cities in adaptation to technological change. Worker-level results also provide new evidence on the skill bias of recent innovations.

Technological Adaptation, Cities, and New Work

Where does adaptation to innovation take place? I present evidence on the role of agglomeration economies in the application of new knowledge to production. All else equal, workers are more likely to be observed in new work in locations initially dense in college graduates and industry variety. This pattern is consistent with economies from the geographic concentration of factors and markets related to technological adaptation. A main contribution is a new measure, based on revisions to occupation classifications, that characterizes cross-sectional differences across cities in technological adaptation. Worker-level results also provide new evidence on the skill bias of recent innovations.

The effect of regional differences on the performance of software firms in the Netherlands

In this paper, we concentrate on how evolutionary economics contributes to a better understanding of the spatial evolution of newly emerging industries. Inspired by evolutionary thinking, four types of explanations are discussed and tested in an empirical analysis of the spatial pattern of the software sector in the Netherlands. Traditionally, agglomeration economies provide an explanation for the spatial concentration of an industry. Firms located in a cluster of similar or related sectors benefit from cost reductions, due to lower transportation costs, a thick labour market, specialised suppliers and information spillovers. An evolutionary approach on agglomeration economies provides an alternative view. It focuses explicit attention on knowledge spillovers as a vehicle of local diffusion of organizational routines or competences from one firm to the other. Such transfers of (tacit) knowledge are facilitated by spatial proximity of firms and a common knowledge base. In addition, an evolutionary approach takes a dynamic perspective on the role of agglomeration economies. During the initial stage of development of a new industry, the surrounding environment is still directed to routines and competences related to existing industries. When the new industry concentrates in a particular area to a considerable degree, a supportive environment (specialized knowledge, labour with specific skills) may gradually come into being, and localization economies may arise. Other evolutionary mechanisms may also provide an explanation for the spatial formation of new industries. We distinguish another three of them. First of all, transfer of knowledge and successful routines between firms in an emerging industry may occur through spin-off dynamics. Secondly, (social) networks may function as effective channels of knowledge diffusion and interactive learning, because they can provide a common knowledge base and mutual understanding and trust. Thirdly, firms in new industries with organizational capabilities that can deal effectively with the lack of required resources (such as knowledge, skills and capital) may become dominant, due to selection and imitation. Based on cross-sectional data gathered among 265 software firms in the Netherlands in 2003, we have tested which factors have influenced the innovative productivity of these firms. Using regression techniques, the outcomes suggest that spin-offs and firms with organizational capabilities perform better, while networks relations do not seem to affect the performance of software firms. Geography matters as well: software firms located in a region with a labour market with more ICT-skills show a higher innovative productivity.

Knowledge transfer and the location of new ICT firms

This paper looks at the determinants of births of new establishments in the information and communications technology (ICT) sector among 416 4-digit zip code areas in the Dutch province of Zuid-Holland (South-Holland). In particular, we examine the role of agglomeration economies and other locational attributes in determining where new firms will locate. Agglomeration economies facilitate knowledge transfer and are thus expected to be important determinants of entrepreneurial activity. We find that more industrially diverse zip code areas that are already relatively specialised in ICT attract more start-up establishments than other zip code areas. This result supports previous evidence that high-technology enterprises tend to collocate in areas where economic activity is spatially dense.

An Equilibrium Model of Office Location and Contact Patterns

In this paper, we develop an equilibrium model of office location, which explicitly considers the source of agglomeration economies and which sees firm location and contact patterns as jointly and endogenously determined. We solve the model explicitly for contact-benefit, facility-cost, and transport-cost functions representative of medium-sized US cities. The resulting rent functions are concave rather than convex as they are in most models of industrial and residential location. The source of the concavity is that firms make contacts throughout the central business district (CBD). To determine the role of agglomeration economies associated with interfirm contacts, we alter the contact-benefit function, the transport-cost function and the size of the CBD. We find that agglomeration economies have a strong effect on location and, indeed, are often sufficiently strong to produce counterintuitive results. For example, an increase in transport costs causes a decrease rather than an increase in transport expenses, because in the city, which is now smaller, a firm decreases the number of contacts. Further, the increase in transport costs does not increase the relative attractiveness of the center.