Agglomeration and regional employment growth

The advent of the New Economic Geography has spawned a renewed interest in questions of agglomeration. The present work expands the research on the impact of agglomeration economies on employment growth by connecting two strands of the empirical literature. A localization index and a cluster index are calculated in order to measure the prevalence of agglomeration. Using these indices, industries and locations that exhibit geographical concentration are identified. The main part of the paper is an econometric analysis. In a dynamic panel data model, the two indices are explicitly used to measure additional dynamic employment growth in agglomerated plants. The study uses panel data that covers all western German employment subject to social security from 1989 to 2006 in 326 districts. I analyze which regional characteristics favor the growth of employment in 191 industries of the manufacturing and service sectors. There is evidence that industrial agglomerations exhibit stronger dynamic growth than other industry/region cells.