Marshall’s Scale Economies and Jacobs’ Externality in Korea: the Role of Age, Size and the Legal Form of Organisation of Establishments

Abstract

This paper revisits the concept of agglomeration economies by estimating the effects of localisation, urbanisation and local competition on labour productivity using establishment-level data in Korean manufacturing industries. It is found that, when an establishment locates in a more localised/specialised, more urbanised/diversified and more competitive area, its workers become more productive due to external benefits from agglomeration. Issues of self-selection bias and omitted variable bias are addressed by instrumenting the variables measuring localisation economies and controlling for the fixed effects of establishments/location and industries/year. However, the external effects from the spatial proximity of other establishments vary across the categories of industry type, age, size and legal form of organisation of establishments. Establishments in traditional heavy manufacturing industries receive more external benefits in a less diversified area, while those in transport equipment manufacturing industries enjoy the largest benefits from localisation. Externalities exist for establishments aged between 2 and 7 years, having at least 10 workers, being corporate and having multiplants (or not being headquarters). Establishments in relatively young industries rely more on diversified environments, while establishments in relatively old industries receive greater external benefits in the same industry cluster. This result supports the product life-cycle location theory of Duranton and Puga.

Does the Crisis Change the Nature of Agglomeration Economies in Indonesia?

“…Through this finding, it was possible to explain the properties of the industries receiving more external costs from large areas and diversified environments. The failure of transport industries to absorb external benefits from any agglomeration economies source is contrary to the conclusions from Lee et al (2010) and Henderson et al (2001). They studied the same industry in Korea and found that it sourced external benefits from localisation.…”

“…Nevertheless, when compared to localisation economies in other countries' cases, our result apparently exhibited a similar magnitude. These include the 0.02 to 0.08 for the United States manufacturing (Henderson 2003), 0.03 for British manufacturing (Graham 2009), 0.032-0.063 for Korean manufacturing (Lee et al 2010), and 0.05-0.06 for French manufacturing (Martin et al 2011). This finding contradicts the survey of De Groot et al ( 2016) that conclude it would be a less likely insignificant effect of specialisation when using micro-panel data as it might be less important at the firm level.…”

Foreign and Spatial Spillovers in the European Electricity Sector

“…This conceptualization formalizes the importance of both scale economies, internal to the firm and captured by size, and agglomeration economies (Song Lee et al 2010), which capture the external benefits of the agglomeration of production activities in urban areas. The model also allows accounting for both MAR-and Jacobs-type agglomeration economies (Marshall 1890;Arrow 1962;Romer 1986;Jacobs 1969).…”