CO-LOCATION OF MANUFACTURING & PRODUCER SERVICES – A SIMULTANEOUS EQUATION APPROACH

This paper investigates the tendencies of co-location between producer services and manufacturing across Swedish functional regions. The employment in these industries is modeled as being determined simultaneously, i.e. the location of producer services is a function of the location of manufacturing and vice versa. The rationale for the simultaneous approach comes from an assumption of a supplier-customer relation between the two categories of industries. Manufacturing firms benefit from short-distance supply of producer services. The service suppliers benefit from accessibility to customers among the manufacturing firms. Accessibility based on time distances is incorporated into the analysis to allow for inter-regional effects. Controlling for the availability of a skilled workforce and the size of the private sector for producer services and the average wage-level and the size of the private sector for manufacturing, the empirical results suggest that the location manufacturing employment can be explained by its accessibility to producer services. However, accessibility to manufacturing is not a statistically significant explanatory factor for the location of producer services. The interpretation is that many producer services are produced for other service industries, which is consistent with previous empirical results. Also, the results indicate that the elasticity of knowledge intensive manufacturing with respect to (w.r.t) accessibility to producer services is smaller than the elasticity of non-knowledge intensive manufacturing w.r.t accessibility to producer services.