A dynamic approach to the tendency of industries to cluster

effects, i.e. manufacturing employment in a functional region is not restricted to be a
function of the producer service employment in the same region only.

There are several justifications for performing a study of this type. First and foremost,
the paper will reveal which synergy effects are likely to take place as a result of increased
employment in one of the industries. This is important from a policy perspective,
especially when it comes to policies aimed at attracting firms in the sectors considered in
the paper. For example, the estimates will indicate what effects, in terms of
manufacturing employment, policy makers can expect from attracting producer service
providers. Second, since one of the conventional theoretical explanations for why firms
would cluster is the existence of specialized input suppliers, the findings in the paper can
be seen as a an indication of the validity of such explanations. The same applies to the
type of modeling previously mentioned, in which it is often assumed that the intermediate
sector operates in proximity to the final sector.

1.1 Outline

The remainder of the paper is organized in the following fashion: Section 2 presents
part of a model developed by Venables (1996). This model is used because it shows how
the location of the producer service sector depends on the location of the manufacturing
sector and vice versa. In Section 3, the producer service sector and the manufacturing
sector are defined. Also, a general description of the spatial distribution of the sectors
analyzed in the paper is presented. Section 4 presents the results of the empirical
investigation. Section 5, the final section, concludes the paper and makes suggestions for
further research.

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