Agglomeration Economies: The Heterogeneous Contribution of Human Capital and Value Chains

CID Research Fellow & Graduate Student Working Paper No. 76

Dario Diodato, Frank Neffke, Neave O'Clery
August 2016

*Updated version of this paper published here*


We document the heterogeneity across sectors in the impact labor and input-output links have on industry agglomeration. Exploiting the available degrees of freedom in coagglomeration patterns, we estimate the industry-specific benefits of sharing labor needs and supply links with local firms. On aggregate, coagglomeration patterns of services are at least as strongly driven by input-output linkages as those of manufacturing, whereas labor linkages are much more potent drivers of coagglomeration in services than in manufacturing. Moreover, the degree to which labor and input-output linkages are reflected in an industry's coagglomeration patterns is relevant for predicting patterns of city-industry employment growth.

Keywords: Coagglomeration, Marshallian externalities, labor pooling, value chains, manufacturing, services, regional diversification

JEL classifications: J24, O14, R11

Affiliated Program: Growth Lab