Urbanization, Agglomeration, and Coagglomeration of Service Industries

Abstract

Services now dominate the United States and other advanced economies, most of all in large cities.Employment in most services industries is strikingly urbanized, while manufacturing is the least urbanized sector of the economy, aside from natural resource-dependent sectors of agricultural support and mining.The economic future of cities depends on services, and understanding why services are in cities is essential to understanding the function of cities in modern economies.Although services are highly urbanized, they are less concentrated than manufacturing industries are.While there are examples of highly agglomerated services industries-such as investment banking and motion picture production-services are, on average, less agglomerated than manufacturing at the county level and much less so at the state level.Furthermore, nearly all agglomerated services industries are highly urbanized, whereas many manufacturing industries agglomerate in smaller cities or rural areas.The traditional study of agglomeration, which focused on manufacturing, could safely divorce the question of urbanization from agglomeration.To analyze why some services industries are agglomerated, it is important to ask at the same time why services are urbanized.To assess why services are less agglomerated, yet highly urbanized, this chapter looks at coagglomeration between pairs of industries, which helps reveal the microfoundations for the observed location patterns in services