| Abstract: | In recent empirical literature on spatial agglomeration, manypapers find evidence consistent with location-specific externalitiesof some sort. Our willingness to accept evidence of agglomerationeconomies depends on how well key estimation problems have beenaddressed. Three issues are particularly troublesome for identifyingagglomeration effects: unobserved regional characteristics,simultaneity in regional data, and multiple sources of externalities.Two empirical results appear to be robust to problems createdby the first two issues: (a) individual wages are increasingin the presence of more-educated workers in the local laborforce, which is consistent with localized human-capital externalities,and (b) long-run industry growth is higher in locations witha wider range of industrial activities, which suggests thatfirms benefit from being in more diverse urban environments.Other evidence is supportive of agglomeration effects relatedto regional demand linkages and short-run, industry-specificexternalities. |
