A dynamic approach to the tendency of industries to cluster

interaction variable based on this dummy are incorporated into the model. These are used
in order to reveal if regional size-effects are present, i.e. is it so that the relationship
between the employment in the sectors are different between urban and non-urban
regions?

As mentioned in the introduction, accessibility is used to allow for inter-regional
effects. Thus, manufacturing employment in a functional region is not restricted to be a
function of the producer service employment in the same region only (and vice versa).
The superscript a refers to the total accessibility of a region. That is, it is a region’s
accessibility to itself plus the accessibility to everything outside the region. Letting
W={1,...,n} be a set containing all n municipalities in the economy and letting R denote a
functional region constituted by some of the municipalities in W, so that R ⊂ W , the
total accessibility to manufacturing employment of functional region R is in this paper
defined as in Equation (14) ¹⁴.

(14) M  ∑. R Zj₁WMjexp {- j

The total accessibility of region R is consequently constructed as a weighted average
of the total accessibility of all the municipalities belonging to that functional region. θ_i
refers to municipality i’s share of the total manufacturing employment in region R. tij is
the time distance between municipality i and j¹⁵. ? is a distance-decay (or distance-
friction) parameter. In the construction of the accessibility variable, a value of λ has to be
used. Here, ? was set to 0.017. This is the value found by Hugosson & Johansson (2001),
when studying inter-regional business trips in across regions in Sweden. The accessibility
to producer services was constructed in an analogous manner.

At this point, some clarification is needed before moving on to the actual estimation
of the equation system. The system of equations might not appear as being simultaneous,
meaning that the L.H.S variable in one equation does not explicitly emerge on the R.H.S
in the other equation. For instance, in Equation (13a) the accessibility to producer service
employment is treated as endogenous while the dependent variable in Equation (13b) is
the regional producer service employment. As in Deitz (1998, p.205), this type of
modeling can be motivated by the fact that the accessibility to, say, manufacturing
employment in region i from region j is likely to be determined by the same factors as
producer services in region j. Thus, the accessibility variables will be treated as
endogenous even if they technically do not give the impression of being so.

¹⁴ Observe that in Equation (14), j can be equal to i, so that the intra-municipal accessibility is incorporated into
the total accessibility.

¹⁵ Specifically, the time distance refers to the travel time by car between two municipalities 1998. The Swedish
National Road Administration (SNRA) provided this data.

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