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Geographic Concentration of Business Services Firms: A Poisson Sorting Model

1st Person: Koster, Hans
Additional Persons: van Ommeren, Jos N.; Rietveld, Piet; van Ommeren, Jos
Type of Publication: Paper
Language: English
Published: Tinbergen Institute 2011
Series: 51st Congress of the European Regional Science Association: "New Challenges for European Regions and Urban Areas in a Globalised World", 30 August - 3 September 2011, Barcelona, Spain
Keywords: Regionales Cluster
Dienstleistungssektor
Betriebliche Standortwahl
Regionalökonomik
Regional cluster
Service industry
Firm location choice
Online: https://www.econstor.eu/bitstream/10419/120082/1/ERSA2011_0750.pdf
Description: This paper examines the effects of specialisation (within-sector clustering) and diversity (between-sector clustering) on business services profitability and location choice. We apply a semiparametric Poisson sorting model allowing for firm-specific effects. We find that for most firms, profitability of business services firms is substantially higher close to specialised clusters of business services firms. A standard deviation increase in business services specialisation leads to on average a 40 percent increase in the probability that a business services firm locates there, supporting theories of Marshall, Arrow and Romer. It is also profitable for most business services firms to locate near a group of firms that belong to the same sector, not necessarily business services firms, so diversity is negatively related to location decisions. Almost all firms either benefit from within-sector clustering or between-sector clustering. Within-sector clusters are particularly profitable for large mature firms, whereas between-sector clusters are relatively more profitable for smaller innovative firms.

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