Geographic Concentration of Business Services Firms: A Poisson Sorting Model

Tinbergen Institute Discussion Paper 2011-085/3

34 Pages Posted: 6 Jun 2011

See all articles by Hans Koster

Hans Koster

VU University Amsterdam - Department of Spatial Economics

Jos van Ommeren

Vrije Universiteit Brussel (VUB)

Piet Rietveld(Deceased)

affiliation not provided to SSRN; Tinbergen Institute

Date Written: May 17, 2011

Abstract

This paper examines the effects of specialization (within-sector clustering) and diversity (between-sector clustering) on business services profitability and location choice. We apply a semiparametric Poisson sorting model allowing for firm-specific effects. We find that for most firms, profitability of business services firms is substantially higher close to specialized clusters of business services firms. A standard deviation increase in business services specialization leads to on average a 40 percent increase in the probability that a business services firm locates there, supporting theories of Marshall, Arrow and Romer. It is also profitable for most business services firms to locate near a group of firms that belong to the same sector, not necessarily business services firms, so diversity is negatively related to location decisions. Almost all firms either benefit from within-sector clustering or between-sector clustering. Within-sector clusters are particularly profitable for large mature firms, whereas between-sector clusters are relatively more profitable for smaller innovative firms.

Keywords: sorting, agglomeration economies, specialisation, diversity, heterogeneity, semiparametric estimation

JEL Classification: R12, R14, R39

Suggested Citation

Koster, Hans and van Ommeren, Jos and Rietveld(Deceased), Piet, Geographic Concentration of Business Services Firms: A Poisson Sorting Model (May 17, 2011). Tinbergen Institute Discussion Paper 2011-085/3, Available at SSRN: https://ssrn.com/abstract=1853232 or http://dx.doi.org/10.2139/ssrn.1853232

Hans Koster (Contact Author)

VU University Amsterdam - Department of Spatial Economics ( email )

De Boelelaan 1105
1081HV Amsterdam
Netherlands

Jos Van Ommeren

Vrije Universiteit Brussel (VUB) ( email )

Pleinlaan 2
http://www.vub.ac.be/
Brussels, 1050
Belgium

Piet Rietveld(Deceased)

affiliation not provided to SSRN

Tinbergen Institute ( email )

Burg. Oudlaan 50
Rotterdam, 3062 PA
Netherlands

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