Working Paper: CEPR ID: DP5285
Authors: Heiko A. Gerlach; Thomas R. Rende; Konrad O. Stahl
Abstract: We investigate firms' incentives to locate in the same region to gain access to a large pool of skilled labour. Firms engage in risky R&D activities and thus create stochastic product and implied labour demand. Agglomeration in a cluster is more likely in situations where the innovation step is large and the probability for a firm to be the only innovator is high. When firms cluster, they tend to invest more and take more risk in R&D compared to spatially dispersed firms. Agglomeration is welfare-maximizing, because expected labour productivity is higher and firms choose a more efficient, technically diversified portfolio of R&D projects at the industry level.
Keywords: agglomeration; labour pooling; R&D
JEL Codes: L13; O32; R12
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Agglomeration (R11) | labor supply elasticity (J20) |
| labor supply elasticity (J20) | expected labor productivity (J24) |
| expected labor productivity (J24) | profits (L21) |
| profits (L21) | successful innovation (O35) |
| Agglomeration (R11) | expected labor productivity (J24) |
| Agglomeration (R11) | asymmetric R&D investments (O32) |
| asymmetric R&D investments (O32) | joint success (D74) |
| joint success (D74) | overall industry productivity (L69) |
| Agglomeration (R11) | welfare-maximizing organization of R&D projects (O32) |