What Underlies Localization and Urbanization Economies? Evidence from the Location of New Firms

XREAP 2012-09

44 Pages Posted: 19 May 2012

See all articles by Jordi Jofre-Monseny

Jordi Jofre-Monseny

University of Barcelona - Department of Political Economics

Raquel Marín-López

University of Barcelona - Faculty of Economic Science and Business Studies

Elisabet Viladecans-Marsal

University of Barcelona

Date Written: May 18, 2012

Abstract

The objective of this paper is to analyze why firms in some industries locate in specialized economic environments (localization economies) while those in other industries prefer large city locations (urbanization economies). To this end, we examine the location decisions of new manufacturing firms in Spain at the city level and for narrowly defined industries (three-digit level). First, we estimate firm location models to obtain estimates that reflect the importance of localization and urbanization economies in each industry. In a second step, we regress these estimates on industry characteristics that are related to the potential importance of three agglomeration theories, namely, labor market pooling, input sharing and knowledge spillovers. Localization effects are low and urbanization effects are high in knowledge-intensive industries, suggesting that firms (partly) locate in large cities to reap the benefits of inter-industry knowledge spillovers. We also find that localization effects are high in industries that employ workers whose skills are more industry-specific, suggesting that industries (partly) locate in specialized economic environments to share a common pool of specialized workers.

Keywords: Agglomeration economies, manufacturing industries, localization economies, urbanization economies, specialization

JEL Classification: L25, L60, R12, R30

Suggested Citation

Jofre-Monseny, Jordi and Marín-López, Raquel and Viladecans-Marsal, Elisabet, What Underlies Localization and Urbanization Economies? Evidence from the Location of New Firms (May 18, 2012). XREAP 2012-09, Available at SSRN: https://ssrn.com/abstract=2062229 or http://dx.doi.org/10.2139/ssrn.2062229

Jordi Jofre-Monseny (Contact Author)

University of Barcelona - Department of Political Economics ( email )

Av. Diagonal, 690
Barcelona, 08034
Spain

Raquel Marín-López

University of Barcelona - Faculty of Economic Science and Business Studies ( email )

Barcelona
Spain

Elisabet Viladecans-Marsal

University of Barcelona ( email )

Gran Via de les Corts Catalanes, 585
Barcelona, 08007
Spain

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