Agglomeration economies: Are they exaggerated by industrial aggregation?

Abstract

This paper investigates whether estimates of agglomeration economies are misleading because of industrial aggregation. Most estimates of these economies use data for manufacturing industries at the 2-digit SIC level. But it has been argued that using more disaggregated industries would yield more reliable results. To study this proposition, I compare estimates from 2-digit data to estimates from 3-digit data and from pooled 3-digit data. A comparison of the results shows that estimating agglomeration economies at the 2-digit level does not exaggerate their importance.