A dynamic approach to the tendency of industries to cluster



5. Conclusions

Starting with the observation that co-location between the intermediate sector and the
final sector is usually assumed in the recent type of modeling within the field of the so-
called economics of agglomeration (or cities) and that the cluster literature emphasize
proximity to input suppliers, the endeavor in this paper has been to investigate the
tendencies of co-location between manufacturing and producer services. Indeed, producer
services constitute an important input sector for manufacturing industries. A simultaneous
equations approach, motivated by an assumed input-output relation between the two
sectors, was applied in order to test the co-location tendencies between manufacturing
and producer services.

Using employment data for Swedish functional regions in 2000, the paper has shown
that manufacturing and producer services are indeed co-located in urban regions, i.e. the
size of one sector explains the size of the other sector in those regions. In non-urban
regions, bi-directional location dependency between the sectors could only be found for
non-knowledge intensive traditional industries within the sectors. Additionally, in urban
regions (except for non-knowledge intensive industries), manufacturing was shown to
have a greater impact on producer service employment than the other way around.

The findings in this paper suggest that self-organized cluster formations of advanced
manufacturing and knowledge intensive producer services can only be expected in urban
regions. In this respect, the cumulative mechanism behind such a process is probably
urbanization economies. On the other hand, clusters of traditional manufacturing and non-
knowledge intensive producer services may be found in both urban and non-urban
regions. Hence, their locations seem to be less dependent on regional economic milieu
factors.

One important policy implication of the results presented in the present paper is that a
policy directed towards establishing a cluster of advanced manufacturing and knowledge
intensive producer services in a non-urban region should focus on attracting the latter
type of industries. The reason is that the results in this paper imply that advanced
manufacturing respond to accessibility to knowledge intensive producer service industries
while the opposite effect is not present in such regions.

Since the investigation was made in a static manner, an obvious suggestion for future
research is to perform a dynamic study. This could, for instance, be made by employing a
model of the type presented in Mills & Carlino (1989). With such a set-up, not only
equilibrium employment levels in the two sectors can be obtained, but also long run
effects of changes in the exogenous variables.

19



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