Productive Places : The influence of technological change and relatedness on agglomeration externalities

Abstract

This thesis addresses the topic of agglomeration externalities. Agglomeration externalities can roughly be defined as advantages and disadvantages local firms experience when locating close to other firms. An old debate exists over the question whether firms benefit more from being close to firms in the same industry, or from being close to firms in a large number of different industries. Put differently, researchers have tried to assess whether firms are better off in specialised cities or in diversified cities. To date, empirical evidence is contradictory and the issue remains unresolved. A plausible explanation that is studied in this thesis is that agglomeration externalities are different in different situations. Another reason explaining why the diversity-versus-specialisation debate has not reached a conclusion that is scrutinized in the thesis is that the distinction between diversity and specialization constitutes a false dichotomy. Industries are related to each other in terms of their technologies. Therefore, some industries are likely to generate more spillovers for each other than others. The thesis is rooted in the evolutionary economic paradigm. For example, industry life cycle theorizing is used to structure thoughts on how agglomeration externalities change as industries mature. Furthermore, evolutionary economics regards economic development as a path dependent process in which new activities are added to old activities by adapting and recombining existing technologies into new ones in a branching process. This notion underlies one of the main contributions of the thesis: the development of a Revealed Relatedness index. This index extracts information about technological relatedness from the product portfolios of plants, allowing the quantification of technological relatedness between almost all pairs of manufacturing industries in the economy. The resulting relatedness structure of the economy proofs to be an important driver of the structural transformation we observe in Swedish regional economies. Methodologically the thesis is quantitative in nature. To study variations in agglomeration externalities, it distinguishes between traditional categories of localisation, Jacobs and urbanisation externalities. Localisation externalities are advantages and disadvantages to firms generated by nearby other firms in the same industry, Jacobs externalities are derived from a large variety of local economic activities, and urbanisation externalities are associated with a large local population. Subsequently, the demarcation between localisation and Jacobs externalities is softened by adding two new classes: related localisation externalities and related Jacobs externalities. These categories capture benefits (or costs) of a local presence of related industries, and of local diversity in related industries, respectively. The most important finding is that agglomeration externalities indeed change as industries and plants mature. In particular, local diversity has a beneficial effect in early development stages, whereas localisation effects are strongest in more mature phases. The importance of technological relatedness is manifest in the fact that related localisation externalities lead to persistently better survival chances. The thesis concludes with the presentation of two broad research agendas. The first suggests studying agglomeration externalities across contexts in a large-scale comparative analysis. The second is concerned with the consequences of reconceptualising the economy as a constantly evolving network of technologically related activities.