ABSTRACT
This chapter shows that information technology (IT) industry employment growth in a state is fostered by the co-location of close IT industries, whereas local specialization hurts. It discusses the initial intuition and uses some data from the 1997 Economic Census to test it in the US case. The chapter presents the different theories of agglomeration externalities and regional specialization, emphasizing their differences according to the source, the scope and the conditions strengthening local effects. It provides the convergence externalities with alternative specialization and urbanization theories in fostering employment growth across state-IT industry between 1992 and 1997. The easiest way to sort out the different agglomeration externalities is to take up Marshall A. classic view on geographic concentration. Marshall argues that a firm receives three kinds of benefits by locating near other firms in the same industry: information spillovers amongst producers, more efficient labour markets, and savings in transport costs of suppliers' parts and distribution to retailers.
