Spatial impact of agglomeration externalities

This article examines the extent to which agglomeration economies in one location affect employment growth and establishment births, using data from the Dutch province of South-Holland. The data are of particular interest because they represent a census, rather than a sample, of all establishments and the location of establishments can be pinpointed to within 416 (postal) zip code areas averaging less than 6 km2 in size. Results suggest that agglomeration economies positively affect employment growth and the location of new establishments, but with the possible exception of manufacturing, this effect dies out quickly with distance. Thus, the main finding is that for many industries, agglomerative forces may well operate at a geographic scale that is smaller than a city.