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Marshall’s Scale Economies and Jacobs’ Externality in Korea: the Role of Age, Size and the Legal Form of Organisation of Establishments

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  • Bun Song Lee

    (Bun Song Lee is in the College of Business, Northwestern State University, 306A Russell Hall, Natchitoches, Louisiana, 71497, USA, bunslee@hotmail.com)

  • Soomyung Jang

    (Soomyung Jang is in the Graduate School of Educational Policy and Administration, Korea National University of Education, San 7 Darak-ri, Gangnae-myeon, Cheonwongun, Chungbuk, 363-791, Korea, smjang@knue.ac.kr)

  • Sung Hyo Hong

    (Sung Hyo Hong is in the Department of Economics, Syracuse University, 131 Eggers Hall, Syracuse, New York, 13224, USA, shong11@maxwell.syr.edu)

Abstract

This paper revisits the concept of agglomeration economies by estimating the effects of localisation, urbanisation and local competition on labour productivity using establishment-level data in Korean manufacturing industries. It is found that, when an establishment locates in a more localised/specialised, more urbanised/diversified and more competitive area, its workers become more productive due to external benefits from agglomeration. Issues of self-selection bias and omitted variable bias are addressed by instrumenting the variables measuring localisation economies and controlling for the fixed effects of establishments/location and industries/year. However, the external effects from the spatial proximity of other establishments vary across the categories of industry type, age, size and legal form of organisation of establishments. Establishments in traditional heavy manufacturing industries receive more external benefits in a less diversified area, while those in transport equipment manufacturing industries enjoy the largest benefits from localisation. Externalities exist for establishments aged between 2 and 7 years, having at least 10 workers, being corporate and having multiplants (or not being headquarters). Establishments in relatively young industries rely more on diversified environments, while establishments in relatively old industries receive greater external benefits in the same industry cluster. This result supports the product life-cycle location theory of Duranton and Puga.

Suggested Citation

  • Bun Song Lee & Soomyung Jang & Sung Hyo Hong, 2010. "Marshall’s Scale Economies and Jacobs’ Externality in Korea: the Role of Age, Size and the Legal Form of Organisation of Establishments," Urban Studies, Urban Studies Journal Limited, vol. 47(14), pages 3131-3156, December.
    • Handle: RePEc:sae:urbstu:v:47:y:2010:i:14:p:3131-3156
    DOI: 10.1177/0042098009359953
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    2. Roberto Ganau & Andrés Rodríguez†Pose, 2018. "Industrial clusters, organized crime, and productivity growth in Italian SMEs," Journal of Regional Science, Wiley Blackwell, vol. 58(2), pages 363-385, March.
    3. Klein, Alexander & Crafts, Nicholas, 2015. "Agglomeration Externalities and Productivity Growth : U.S. Cities in the Railroad Era, 1880-1930," CAGE Online Working Paper Series 235, Competitive Advantage in the Global Economy (CAGE).
    4. Alexander Klein & Nicholas Crafts, 2015. "Agglomeration Economies and Productivity Growth: U.S. Cities, 1880-1930," Studies in Economics 1514, School of Economics, University of Kent.
    5. Zhi Li & Chengri Ding & Yi Niu, 2019. "Industrial structure and urban agglomeration: evidence from Chinese cities," The Annals of Regional Science, Springer;Western Regional Science Association, vol. 63(1), pages 191-218, August.
    6. Giulio Cainelli & Roberto Ganau & Donato Iacobucci, 2016. "Do Geographic Concentration and Vertically Related Variety Foster Firm Productivity? Micro-Evidence from Italy," Growth and Change, Wiley Blackwell, vol. 47(2), pages 197-217, June.
    7. Wan, Guanghua & Zhang, Yan, 2018. "The direct and indirect effects of infrastructure on firm productivity: Evidence from Chinese manufacturing," China Economic Review, Elsevier, vol. 49(C), pages 143-153.

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