Chapter 4: The Evolution of Geographic Structure in New Industries
Steven Klepper* 1. INTRODUCTION In recent years there has been a resurgence of interest among economists in questions related to geography. In part spurred by the clustering of economic activity in Silicon Valley, attention has focused on why certain industries agglomerate narrowly in one or a few regions. Ellison and Glaeser (1997) developed an index to measure geographic clustering in industries. It calibrates the extent to which clustering in an industry exceeds what would be expected merely on the basis of the chance location of a limited number of plants of unequal size. Their ﬁndings suggest that some degree of agglomeration is the norm, but the kind of extreme clustering present in Silicon Valley is the exception. While clustering in some industries can be explained by the uneven geographic distribution of a key input, instances of clustering like in Silicon Valley seem to reﬂect a deeper process at work. Exactly what that process is and why its eﬀects vary across industries has been the object of much theorizing in recent years. Testing of the new theories of geography, though, has lagged behind. The object of this chapter is to review recent evidence and theorizing on the evolution of a select group of new industries to probe the determinants of the geographic structure of industries. Modern theories of geography feature the inﬂuence of agglomeration economies on the location of producers. Such economies can derive from the sharing of inputs whose production involves increasing returns, labor market pooling that...
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