Small Establishments/Big Effects
Small Establishments/Big Effects
Agglomeration, Industrial Organization, and Entrepreneurship
There is a long history of urban thinking that has considered the role of the organization of production into firms in the generation of increasing returns. This chapter discusses an econometric analysis of the organization–agglomeration relationship. It considers the relationship between the corporate organization of production (into establishments) and the spatial organization of production (into cities). Agglomeration economies are inherently geographic in nature. It does not matter whether the increasing return arises from consumer–supplier linkages, from entrepreneurial spillovers, or from knowledge spillovers or labor market pooling. The chapter concerns the microfoundations of the external increasing returns that give rise to the agglomeration patterns observed in the data, and reviews the theoretical and empirical literatures on industrial organization and agglomeration. The models of the birth of small establishments and the magnitude of their operations are also estimated. This estimation is carried out at the census tract level, using within metropolitan statistical areas variation in local industrial organization to estimate the models.
Keywords: urban thinking, organization–agglomeration relationship, agglomeration economies, metropolitan statistical areas, labor market pooling
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