Concentration, agglomeration and the size of plants

This paper investigates whether the geographic distribution of manufacturing activities depends on the size of plants. Using Italian data we find, as in Kim (1995) and Holmes and Stevens (2002, 2004), that large plants are more concentrated than small plants. However, considering distance-based patterns via spatial auto-correlation, we find that small establishments actually exhibit a greater tendency to be located in adjacent areas. These apparently contradictory findings raise a measurement issue regarding co-location externalities, and suggest that large plants are more likely to cluster within narrow geographical units (concentration), while small establishments would rather co-locate within wider distance-based clusters (agglomeration). This picture is consistent with different size plants engaging in different transport-intensive activities.