Caution to place makers: Greater firm density does not always promote incumbent firm health
William Kerr, Oliver Falck, Christina Günther, Stephan Heblich, 11 February 2013
Governments around the world are fostering industrial ‘clusters’, hoping to create agglomeration economies. Using the political division of Germany in 1949, this column argues that heightened firm density can raise costs for incumbent firms in addition to the often-cited agglomeration benefits. This is important for policymakers contemplating efforts to promote their local areas by targeted cluster initiatives and bidding to attract large firms. Policy efforts that are neutral in orientation – such as physical infrastructure investments or improving the generation and dissemination of knowledge – may be more effective alternatives.
A common theme in economic geography is that increasing returns to scale at the local level are essential for explaining the geographical distribution of economic activity. These agglomerative forces are often cited as a rationale for policy intervention to attract new firms to areas.
Topics: Industrial organisation
Tags: agglomeration, clusters, East Germany, Germany
Is the new economic geography passé?
Marius Brülhart, 7 January 2009
Paul Krugman suggests that his Nobel-prize-winning “core-periphery” model was perhaps more relevant a century ago than today. This appears to be true in terms of overall manufacturing concentrations in Europe and North America, which are unravelling. Large-scale agglomeration forces, however, are alive and well in the developing world, as are localised sectoral clustering phenomena in industrialised countries.
In his Nobel Prize lecture on December 8, Paul Krugman argued that his core-periphery model of economic geography is in some sense becoming obsolete.
Topics: Development, Productivity and Innovation
Tags: agglomeration, clusters, economic geography, urbanisation
Natural clusters: Why policies promoting agglomeration are unnecessary
Philippe Martin, Thierry Mayer, Florian Mayneris, 4 July 2008
Governments spend heavily on industrial clusters. They are wasting their money if firms naturally cluster to reap agglomeration gains. This column presents evidence from France that questions policymakers’ enthusiasm for promoting clusters.
Policymakers love to promote industrial clusters. Since the end of the 1980s, national and local governments in Germany, Brazil, Japan, South Korea, Spanish Basque country, and France, inter alia, have attempted to foster their development.
Topics: Microeconomic regulation, Productivity and Innovation
Tags: agglomeration, clusters, localisation economies
Spatial concentration and firm-level productivity in France
Philippe Martin, Thierry Mayer, Florian Mayneris, 16 June 2008
The analysis of agglomeration economies focuses around two separate important questions: how large the gains from agglomeration are and how much firms internalize these gains when deciding where to locate. In order to provide answers, the authors of CEPR DP6858 focus on agglomeration externalities and distinguish between urbanization economies, which refer to the cross fertilization of different industries on a given territory and localization economies, which group the concepts of externalities on inputs market, on the labour market and knowledge.
The analysis of agglomeration economies focuses around two separate important questions: how large the gains from agglomeration are and how much firms internalize these gains when deciding where to locate.
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Topics: Productivity and Innovation
Tags: clusters, localization economies, productivity, spatial concentration