DP11884 The determinants of coagglomeration: Evidence from functional employment patterns

Author(s): Kristian Behrens, Rachel Guillain
Publication Date: February 2017
Keyword(s): agglomeration mechanisms, coagglomeration, Duranton-Overman index, functional specialization
JEL(s): L60, R12
Programme Areas: International Trade and Regional Economics
Link to this Page: www.cepr.org/active/publications/discussion_papers/dp.php?dpno=11884

Locations differ horizontally in the industry mix they host and vertically in the value-chain functions they perform. Since industry pairs should coagglomerate the functions that interact intensively across industries, analyzing horizontal and vertical patterns can improve our understanding of agglomeration mechanisms. We find that different functions within the same industry pairs display substantially different coagglomeration patterns. While production coagglomerates at longer distances, management and research coagglomerates at short distances. These patterns are consistent with our findings that buyer-supplier links and local labor pools are important for production, whereas they matter less for management and research that rely on shared knowledge. Our results provide support for agglomeration theories and show that extant estimates of average effects based on total employment mask substantial heterogeneity.