ABSTRACT
Regional and local policy-makers increasingly look to targeting-based strategies to promote and encourage high agglomerations of activity in selected industrial sectors. Such policies are motivated by the recognition that industry agglomeration provides location-specific advantages that are external to individual businesses but are shared by establishments operating in the local industry (Porter 2000). These localization externalities, as discussed by Woodward and Guimarães in Chapter 5, include the availability of a skilled workforce and specialized machinery, and information spillovers concerning product markets and production technologies (Barkley and Henry 1997; Krugman 1991; Marshall 1890). Although many economic development researchers and practitioners believe they exist, location-specific advantages of industry agglomeration are difficult to capture and measure directly. For this reason, past studies have used a variety of indirect indicators related to business performance (e.g., firm location, employment growth, wages) and comparisons of the growth of industries across regions to measure the effects of industry agglomeration (Glaeser et al. 1992; Head et al. 1995; Gibbs and Bernat 1997).
