Top PDF Agglomeration economies and productivity in Indian industry

Agglomeration economies and productivity in Indian industry

Agglomeration economies and productivity in Indian industry

As market size can be maximized by either locating in large urban areas or on high access transport corridors, firms employing standardized production processes (as in Indian industry) w[r]

40 Read more

Agglomeration economies, firm-level efficiency and productivity growth: empirical evidence from Indonesia

Agglomeration economies, firm-level efficiency and productivity growth: empirical evidence from Indonesia

Chapter 2 discusses the growth and performance of the manufacturing industry in Indonesia since the 1970s. One interesting feature of this growth concerns the tendency of firms to concentrate their locations within particular regions that have adequate access to markets, appropriate infrastructures and production inputs. In general, this tendency is known as agglomeration. Agglomeration is recognized as an important factor in economic development, especially for improving areas of economic performance such as productivity, innovation and economic growth. Ciccone (2002) states that increases in the agglomeration within particular regions positively affects regional growth. Similarly, Fujita and Thisse (2002) mention that agglomeration can be considered the territorial counterpart to economic growth According to Marshall (1920), firms tend to concentrate in particular regions to obtain benefits from economies of scale, labour pooling and knowledge spillovers. Location proximity encourages the transmission of knowledge, reduces transportation costs and creates a more efficient labour market. Ohlin (1933) and Hoover (1948) expand on Marshall’s concept of agglomeration economies by dividing them into localization economies and urbanization economies. The first pertains to the economies of a specialized economy or specialization phenomena, while the latter pertains to the economies of an urban region with a diversified economy. The concept of urbanization economies coincides with Jacobs’ (1969) thoughts concerning knowledge spillovers, in which she argues that the diversity found in geographically concentrated industries stimulates innovation and growth. In addition, Porter (1990) provides more insight into the knowledge spillovers theory, where he suggests that competition rather than monopoly promotes innovation and growth.
Show more

251 Read more

Agglomeration economies and urban productivity

Agglomeration economies and urban productivity

The results obtained are supported with those obtained by 2SLS and are consistent with previous empirical findings given that the productivity gains of urban agglomeration economies are generally found to be positive ( Melo et al. 2009 ), The results obtained differ in that the location economies are not significant. At this point, it should be noted that 94% of the firms of the two years analyzed correspond to the category of microenterprise, 4% correspond to small firms, and the 2% remaining percentage are medium and large firms 6 . This corresponds to the finding of Jacobs ( 1969 ) that small businesses benefit more from urban diversity in large cities due to their greater dependence on external industrial environments for multiple intermediate inputs, while large companies are self-sufficient. 5 Conclusion
Show more

9 Read more

Agglomeration economies, globalization and productivity. Firm level evidence for Slovenia.

Agglomeration economies, globalization and productivity. Firm level evidence for Slovenia.

A potential concern that arises is self-selection of firms. The most productive firms locate in the regions where agglomeration effects are strongest, which in turn can strengthen already existing agglomeration economies. Such endogeneity of our agglomeration measures, however, is less likely as we include firm fixed effects in all specifications and hence we control for such self-selection, provided it takes time for regions to build up agglomeration economies. Nevertheless, we also ran the same specification, but with lagged values of our agglomeration measures. The idea is that if self-selection is driving our results, the lagged values of our agglomeration measures should not have an impact on current productivity and hence any positive effect can then be attributed to the actual impact of agglomeration, rather than self- selection. We report these results in the second and third column. The second column includes the RHS variables lagged by one period, while third column includes second lags of the explanatory variables. The point estimates related to knowledge spillovers remain virtually the same. While the effect of market access goes up in the second column. Using two lags, however, this effect becomes insignificant, although it remains positive. This suggests some unspecified dynamics related to market access and potential self-selection effects that are dynamic in nature. All in all, the results remain relatively robust, which suggests that self-selection cannot explain the positive effects of agglomeration on measured total factor productivity.
Show more

20 Read more

Agglomeration Economies and Productivity Growth in India

Agglomeration Economies and Productivity Growth in India

Agglomeration economies have been analyzed in the literature as drivers of economic growth, as these contribute to productivity enhancement. The primary objective of this paper is to ascertain the existence of agglomeration economies, and to examine the extent to which these have contributed to productivity growth in India. Two sources of agglomeration economies are distinguished – (i) at the industry level – localization economies of intra-industry linkage; and (ii) at the regional level – inter-industry urbanization economies. Growth accounting framework is used with agglomeration parameters included in the shift term of a general production function, coefficients of which are estimated through panel data regression. I employ state level data for 25 state economies in India for the period 1980-81 to 2006-07. Results provide evidence that urbanization economies tend to exist; however, there is considerable variation in the sources and magnitude of agglomeration economies across sectors. Results indicate that for service sector, the economies of urbanization exist on a lower level of urbanization, whereas for manufacturing, these economies are present at higher levels. Results support regional diversity more than localization, even if some differences can be seen across sectors.
Show more

25 Read more

Agglomeration economies with consistent productivity estimates

Agglomeration economies with consistent productivity estimates

Using establishment and employment level data from the Institute for Employment Research (IAB) from 2000 to 2007, I find that in univariate regressions all agglomeration mechanism variables have the expected sign and statistical significance. However, some variables’ significance vanishes in multivariate regressions. Still, labor pooling, captured trough the correlation of the occupational composition between one county-industry and the rest of the county, has the highest and most significant impact on plant productivity. Besides, two knowledge spillover mechanisms, transmitted via job changes and public R&D funding, positively affect plant TFP. The poor performance of input linkages may be due to the lack of detailed information about the flow of intermediate goods. In both multivariate and univariate regressions the agglomeration externalities tend to be more significant and higher in magnitude, when the omitted price and endogeneity bias are accounted for. On the one hand, it confirms the theoretical (Melitz 2003) and empirical (Foster et al. 2008) finding that highly productive establishments set lower prices. This, on the other hand, stresses the importance of separating price effects from true productivity. The robustness of these results is evaluated by controlling for the type of county and varying the range of industries. Then, the spatial unit of the entire analysis is changed from counties to larger labor market regions in order to assess the MAUP and the geographic scope of the externalities. Furthermore, I construct four additional productivity measures: labor productivity, TFP estimated from value added instead of revenue based production functions, and TFP resulting from the Levinsohn and Petrin (2003) and the Ackerberg et al. (2006) estimation procedure, as alternatives to the OP model. The comparison suggests that especially labor productivity is an imprecise measure, which is likely to overestimate the size and significance of agglomeration economies. In a nutshell, the key findings remain valid under these extensions.
Show more

42 Read more

Agglomeration Economies and Local Comovement of Stock Returns

Agglomeration Economies and Local Comovement of Stock Returns

Urban agglomeration economies enhance the productivity of firms in cities. For listed companies located in cities, agglomeration economies improve their fundamentals; therefore, agglomeration economies should be closely related to stock markets. Although urban economists have done extensive studies to theorize and empirically test agglomeration economies, surprisingly, few have paid attention to the relationship between agglomeration economies and capital markets. 1 Interestingly, in finance, increasing attention has been paid to the economic effects of geography on capital markets. One documented anomaly is that, after controlling for risk factors, stock returns of firms headquartered in the same location are significantly correlated (Coval and Moskowitz, 1999, 2001; Pirinsky and Wang, 2006; Anderson and Beracha, 2008). Such a local comovement of stock returns is interpreted as investors’ local bias— the phenomenon where investors prefer to invest in stocks of companies that are geographically close to them (Coval and Moskowitz, 1999, 2001; Ivković and Weisbenner, 2004; Zhu, 2008). Empirical evidence has confirmed that local bias exists in the capital markets of many countries, such as in the USA, Germany, and Sweden (Pirinsky and Wang, 2006; Rudorfer, 2007; Mavruk, 2008). 2
Show more

24 Read more

Regional policy and agglomeration economies in Ireland

Regional policy and agglomeration economies in Ireland

The imperative of enhancing the innovation performance of Irish industry also has implications for the way policymakers think about supporting external agglomeration economies. There is some international evidence suggesting that diversity might be more conducive to innovation than specialisation (Gordon and McCann 005; Feldman and Audretsch, 999). Urbanisation rather than localisation may be important. A well functioning city, with a high degree of economic and social diversity, might be a fertile seed-bed for the development of new ideas. Given that the objective of the New Strategy for Science, Technology and Innovation to 0 is to develop Ireland as a knowledge economy with a critical mass of creative people (Florida and Tingali, 00), it might be important for policymakers to consider whether these kinds of urbanisation economies may be developed in Irish cities. The small size of Irish urban centres implies that the level of diversity evident in some of the world’s larger cities are clearly not possible here. This does not mean that there are no productivity benefits to be experienced from economic and social diversity in Irish cities. In addition there is considerable scope to bring about improvements in the more mundane aspects of urban living in Ireland, such as transport infrastructure and quality of life aspects in and around urban centres.
Show more

14 Read more

The impact of agglomeration economies on hospital input prices

The impact of agglomeration economies on hospital input prices

There is a comparatively smaller empirical literature studying agglomeration benefits through the sharing of intermediate input providers, which this study will con- tribute to. Holmes [3] demonstrated that industries with a greater degree of localization also tend to have a greater degree of vertical disintegration. This result was further reinforced for the health care sector by Li [4], who showed that hospitals in agglomerated areas are more likely to outsource intermediate services such as laboratory tests. Both studies documented the linkage between agglomeration economies and outsourcing behavior. One key result still missing from this litera- ture is an estimate of the magnitude of cost savings or productivity gains that hospitals (or firms in general) reap from sharing intermediate input pro- viders in concentrated locations.
Show more

15 Read more

Agglomeration economies in the Finnish manufacturing sector

Agglomeration economies in the Finnish manufacturing sector

First, the pooled labour market is beneficial both to the firms and employees (labour- market economies). A large local base of a specific industry protects workers from business uncertainty and demand-shocks. Local industry concentration offers many other opportunities in the case of layoffs, which means that workers do not have to relo- cate nor lose their specific skills. On the other hand, the pooled labour force with spe- cific skills lowers the search and recruitment costs of firms. The productivity of firms may even decrease if they are located in regions where certain types of workers are in short supply because they then have to recruit labour from other regions or use the less productive labour that is available locally. Secondly, the proximity of suppliers and cus- tomers, or the forward and backward linkages, respectively, help to create a local milieu or network conducive to more effective production and economic growth. High local demand allows a greater number of producers of intermediate inputs to break-even and an increased variety of intermediate goods in turn makes the production of final goods more efficient (Krugman 1991; Ciccone & Hall 1996). Finally, knowledge spillovers, particularly important in the high tech and innovative sectors, may appear in many ways. Knowledge and ideas about new products and production techniques can be trans- ferred by imitation, business interactions, inter-firm circulation of skilled employees or by informal exchanges, without monetary transactions (Saxenian 1994). The larger the number of workers in an industry, the greater is the opportunity to exchange ideas (communication economies). A further item could be added to this traditional list of localisation economies: better availability of (unmeasured) public intermediate inputs tailored to the technical needs of the industry in question (Henderson 1986).
Show more

21 Read more

Historical trades, skills and agglomeration economies

Historical trades, skills and agglomeration economies

based on simple correlations so to make progress instrumental variables are introduced here. We are convinced that the chosen instruments are valid for the following reasons. Industrialist is one of the professions distinguished in the Census of 1872, the era of the very beginning of the industrialization in Brazil. Industrialists were the owners of factories and their factories provided jobs and generated capital which could be reinvested to expand and continually modernize the production. On the other hand, liberal professions (such as lawyers, judges, professors and teachers) generated knowledge – a scarce and highly valuable asset at that time – and contributed to the functioning of the fragile institutions. As argued above, the local accumulation of knowledge and physical production were key to productivity increases and the sustained economic growth that eventually led to the local development of ever more modern and dynamic industries. A region with predominantly agricultural workers, domestic servants and individuals without a profession, in contrast, hindered the development of the local economy and preserved the ancient structures. An econometric test of these theories over a long period is, to the best of our knowledge, absent thus far. Moreover, we observe that positive progress was much more likely if the region was a large agglomeration already. This suggests that the interaction between supply (provided by the industrialists) and consumer demand created a virtuous cycle for the local economy. Thus, market potential, circular linkages, and history do play a crucial role in the development of agglomerations, as predicted by the theories of the New Economic Geography (Fujita et al. 2001).
Show more

51 Read more

Agglomeration economies and the location of Taiwanese investment in China

Agglomeration economies and the location of Taiwanese investment in China

New economic geography (NEG), pioneered by Krugman (1991a,b) in the 1990s, has reshaped our understanding of the spatial distribution of economic activity. Unlike the neoclassical approach to economic geography, which emphasises the role of comparative advantage, the NEG literature identifies agglomeration economies as one of the driving forces for the concentration of certain industries in particular locations (see e.g. Fujita et al., 1999; Baldwin et al., 2003). Later, researchers extended that idea to the regional distribution of foreign direct investment (FDI). A majority of empirical studies in this field focus on the United States. In general, these studies find a positive relationship between agglomeration economies and the distribution of FDI at the state level (see e.g. Coughlin et al., 1991; Coughlin and Segev, 2000; Shaver and Flyer, 2000; Chung and Alcacer, 2002). Furthermore, Head et al. (1999) and Bobonis and Shatz (2003) find that agglomeration economies affect foreign investors’ location choice in the United States more than fiscal incentives and preferential treatment. They attribute this finding to the fact that, unlike fiscal incentives and preferential treatment, which can be elusive in the long run, agglomeration economies can lead to a prolonged improvement in productivity.
Show more

40 Read more

Do agglomeration economies are lower for polluting sectors?

Do agglomeration economies are lower for polluting sectors?

This article explore how the relation between productivity and local city-size can be mitigated by pollution. More specifically, we estimate agglomeration economies consid- ering a new source of heterogeneity among industries: the degree of pollution. Due to pollution perception acting as a dispersion force, we expect net agglomeration economies to be lower for polluting firms. In fact, polluting firms may anticipate that households and other firms are reluctant to locate near sources of pollution. In this paper, we ex- ploit spatial data on sectoral emissions for a large number of air pollutants. We define a continuous variable of pollution that varies across sectors and employment zones. Our finding are twofold. First we find that agglomeration economies are lower for polluting sectors. Second we find that negative agglomeration are observed for some key pollutant such as carbon dioxide, nitrogen dioxide, lead or sulfur dioxide.
Show more

49 Read more

Marshallian Agglomeration Economies and Entrepreneurship: The Spanish Case

Marshallian Agglomeration Economies and Entrepreneurship: The Spanish Case

probability in big cities to solve problems of job search. Glaeser and Mare (2001) demonstrate that workers in cities earn bigger salaries. But it is not clear if the reason is market coordination. Matching for the case of Spain can be inferred from the work of Arauzo et. al. (2009). They show a positive relation between employment formation and the concentration of one year old new ventures. The evidence support the effect of entrepreneurship in labor creation but the matching relation is not clear. The extensive literature on entrepreneurship and innovation give more evidence for the learning effect. Audretsch and Feldman (1996) find that innovations are concentrated spatially and innovative industries are concentrated geographically. Using a Cobb-Douglas framework for German Kreise Kilbach and Audretsch (2004) show that entrepreneurial capital fosters productivity. In Spain, Segarra (2007) gives evidence that Catalonian companies benefit form R&D spillovers concentrating geographically in the manufacturing sector. This spillover effect is negative for high-tech companies highlighting that for some knowledge-intensive services the scope of learning can be extended beyond greater geographical areas so agglomeration is discouraged.
Show more

30 Read more

Sectoral Agglomeration Economies in a Panel of European Regions

Sectoral Agglomeration Economies in a Panel of European Regions

We use a panel of European regional data from Cambridge Econometrics (CE). 8 This data set covers up to 245 NUTS-2 regions of 20 Western and Eastern Euro- pean countries, spanning the period 1980-2003 (1990-2003 for Eastern European countries). 9 Employment and gross value added are reported for ten broad sec- tors: Agriculture, Construction, Manufacturing and Energy, Wholesale and Re- tail Services, Hotels and Restaurants, Transport and Communication Services, Financial Services, Other Market Services, and Non-Market Services. Follow- ing Ciccone (2002), we do not estimate e¤ects on productivity in Agriculture and Non-Market Services, as the market-based model underlying our research evidently is not applicable to these sectors. In line with previous empirical work, our main focus will be on Manufacturing and on Financial Services, as these appear a priori as the sectors that are least dependent on the location of exogenous endowments and thus most susceptible to the agglomeration forces identi…ed in economic geography models.
Show more

28 Read more

Agglomeration economies and the location of Taiwanese investment in China

Agglomeration economies and the location of Taiwanese investment in China

New economic geography (NEG), pioneered by Krugman (1991a,b) in the 1990s, has reshaped our understanding of the spatial distribution of economic activity. Unlike the neoclassical approach to economic geography, which emphasises the role of comparative advantage, the NEG literature identifies agglomeration economies as one of the driving forces for the concentration of certain industries in particular locations (see e.g. Fujita et al., 1999; Baldwin et al., 2003). Later, researchers extended that idea to the regional distribution of foreign direct investment (FDI). A majority of empirical studies in this field focus on the United States. In general, these studies find a positive relationship between agglomeration economies and the distribution of FDI at the state level (see e.g. Coughlin et al., 1991; Coughlin and Segev, 2000; Shaver and Flyer, 2000; Chung and Alcacer, 2002). Furthermore, Head et al. (1999) and Bobonis and Shatz (2003) find that agglomeration economies affect foreign investors’ location choice in the United States more than fiscal incentives and preferential treatment. They attribute this finding to the fact that, unlike fiscal incentives and preferential treatment, which can be elusive in the long run, agglomeration economies can lead to a prolonged improvement in productivity.
Show more

40 Read more

The empirics of agglomeration economies

The empirics of agglomeration economies

Overall, this strand of literature is an interesting effort to identify the mechanisms underlying agglomeration economies. Ultimately though, it is very difficult to give a clear interpretation of the results, and conclusions are mostly descriptive. This is due to the weak links between estimated specifications and theoretical models. Another concern is whether the right measure of concentration or co-agglomeration has been chosen. The exact properties of concentration indices, even measures ` a la Duranton and Overman (2005), still need to be established. Moreover, one needs to assume that industry characteristics used as explanatory variables really capture the mechanisms they are meant to, and have additive linear effects whereas this is not granted. For instance, according to theory, two industries sharing inputs have more incentive to co-locate when trade costs for these inputs are large. In that perspective, variables capturing input/output linkages should be interacted with a measure of trade costs but this is not done in the literature. Finally, there are probably some endogeneity issues since the dependent variable and the explanatory variables are usually computed from the same quantities. However, the presence and channels of endogeneity are difficult to assess, and it is hard to conclude that some instruments are valid, as estimated specifications have usually not been derived from any precise theoretical framework. On the other hand, since the overall impact of agglomeration on productivity can be evaluated with reasonable confidence nowadays as we emphasised in previous sections, we think that investigating the relative magnitude of agglomeration channels is an important and promising avenue for future research. Descriptive evidence presented in this subsection could be used to build theoretical models from which specifications could be derived allowing the identification of agglomeration channels and strategies to tackle endogeneity concerns. Structural approaches applied to case studies, which are presented in the next subsection, constitute some first steps in that direction.
Show more

106 Read more

"Assessing agglomeration economies in a spatial framework with endogenous regressors"

"Assessing agglomeration economies in a spatial framework with endogenous regressors"

Our theoretical model, therefore, will include several kinds of intangible endowments, which will allow us to control for a wider variety of private returns which derive from the accumulation of these intangible inputs. At the same time, it will let us control for a broader range of social returns or externalities which follow from the accumulation of endowments – however, we are concerned about the difficulty of empirically differentiating at an aggregate level between these two sources of increasing returns, that is, private and social returns. Here, we limit our inputs to those of human capital, knowledge, and entrepreneurial culture 3 . Where these sources of productivity are not controlled for, the estimation of the agglomeration effect could be biased upward. With respect to human capital, it is well known that, even given equal technologies among regions, there exist differences between areas concerning the ability of individuals to make that technology productive (Fingleton, 2003), and there exist also human capital externalities within regions affecting aggregated outcomes (Moretti, 2004) 4 . Further, skills acquired while working are also important (Ciccone and Cingano, 2003). Similarly, different technology levels across regions can explain productivity differentials. We hypothesize that private returns of knowledge and knowledge externalities arise both from knowledge inputs – that is, R&D efforts and the number of employees working in high-technology industrial sectors, and from knowledge outputs, that is to say, patents. Positive effects on productivity are also expected from different levels of entrepreneurial activity. As Audretsch (2002) and Rosenthal and Strange (2004) suggest, the entrepreneurial or business culture of a region could boost economic performance as well. The creation and enlargement of firms is associated with the introduction of new technologies, innovative production processes, and increased competitive pressure on the other firms in a given market, providing them with strong incentives to further innovate and adopt new technologies (Glaeser et al., 1992; HM Treasury, 2001).
Show more

40 Read more

Essays on Foreign Direct Investment, Agglomeration and Productivity

Essays on Foreign Direct Investment, Agglomeration and Productivity

My dissertation studies the role of foreign direct investment (FDI) and agglomeration economies in the industrial development process in the context of a developing economy, China. Recognizing technology as a driver of economic growth, governments in developing countries spend significant resources to attract FDI in the hopes of realizing positive spillovers in the form of international technology transfer as well as opportunities to imitate new products, hire foreign-trained labor, and become suppliers to and consumers of intermediate inputs produced by foreign companies, all of which are believed to enhance domestic firm performance. However, entry of foreign firms can also increase competition in output and input markets spurring domestic firm efficiency or forcing them out of the market. In each of my three chapters, outlined in greater detail in subsequent paragraphs, I argue that the source of foreign investment as well as the domestic economic landscape in which these investments are made shapes the gains that result from FDI. My empirical research leads to three main findings. First, foreign acquirers from more developed countries significantly increase domestic firm performance. Second, positive spillovers from FDI within a city-industry space tend to decline with increases in
Show more

153 Read more

Tax differentials and agglomeration economies in intraregional firm location

Tax differentials and agglomeration economies in intraregional firm location

presenting an elasticity of around 0.40. The variables capturing the urbanization economies (m and se) have elasticities of 0.25 and 0.12, respectively. This suggests that localization economies outweigh the advantages resulting from the presence of employment in distant economic activities. The diversity of the economic environment also shifts the productivity of firms, becoming a valuable attribute for firms in search of a location. The elasticity lies around 0.22 supporting Jacobs’ hypothesis. The results obtained for the relative importance of these location determinants are in line with the results reported in the literature 24 . We have also computed the average marginal effects that are implicit in our agglomeration estimates in order to contextualize our results more closely with other studies 25 . Our localization economies’ estimate implies that 100 extra workers in a particular industry will increase the expected number of start-ups in the same industry by 0.097. In the case of urbanization economies, a 100- worker increase outside the industry increases the number of start-ups by 0.04 if these are manufacturing workers and 0.01, otherwise. These estimates are in the upper limit of the results reported by Rosenthal and Strange (2003). One possible explanation is that, unlike these authors, we hold rents and taxes at a fixed level.
Show more

34 Read more

Show all 10000 documents...