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Identifying urbanisation and localisation externalities in manufacturing and service industries

By Daniel J Graham


This article estimates urbanisation and localisation economies for two digit manufacturing and service industries. The analysis is based on estimation of a translog production-inverse input demand system using data on British firms. We use distance-based measures of localisation to test for the spatial transmission of externalities. We identify positive localisation economies for 13 of the 27 sectors examined. The results indicate that where localisation economies exist, they tend to attenuate fairly rapidly with distance. All localisation externalities are identified within a 10 kilometre radius of the firm. Positive elasticities of productivity with respect to urbanisation are identified for 14 sectors. The weighted average localisation elasticity for manufacturing industries is 0.03 and for services 0.01. The mean urbanisation elasticities are 0.07 and 0.19 respectively. Copyright (c) 2008 the author(s). Journal compilation (c) 2008 RSAI.

DOI identifier: 10.1111/j.1435-5957.2008.00166.x
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