Industrial Localization. An Empirical Test for Marshallian Localization Economies

This paper presents empirical tests of the hypothesis that firms cluster geographically due to Marshallian localization economies. The hypothesis implies that changes in employment in localized industries should be more closely related within the regions than across regions. We develop an empirical test of this hypothesis using annual employment data for four US cities and three industries (two-digit SICs) in the durable manufacturing sector. The results suggest that asset sharing is a significant source of localization economies, and that labour pooling effects may play an important role in rapidly growing labour markets.