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This article considers the heterogeneous microfoundations of agglomeration economies. It studies the co-location of industries to look for evidence of labour pooling, input sharing and knowledge spillovers. The novel contribution of the article is that it estimates single-industry models using a common empirical framework that exploits the cross-sectional variation in how one industry co-locates with the other industries in the economy. This unified approach yields evidence on the relative importance of the Marshallian microfoundations at the single-industry level, allowing for like-for-like cross-industry comparisons on the determinants of agglomeration. Using UK data, we estimate such microfoundation models for 97 manufacturing sectors, including the classic agglomeration cases of automobiles, computers, cutlery and textiles. These four cases—as with all of the individual industry models we estimate—clearly show the importance of the Marshallian forces. However, they also highlight how the importance of these forces varies across industries—implying that extrapolation from cases should be viewed with caution. The article concludes with an investigation of the pattern of heterogeneity. The degree of an industry’s clustering (localisation), entrepreneurship, incumbent firm size and worker education are shown to contribute to the pattern of heterogeneous microfoundations.

This paper investigates the local labor market impact of a UK relocation initiative, the 2014 Lyons Review. The review resulted in the dispersal of about 25,000 civil service jobs out of London and the South East towards other UK destinations. The paper aims to detect whether inflows of public sector jobs have crowded out private sector activity or stimulated the local provision of jobs in the private sector. By separately estimating direct and spillover effects, I find that the relocation programme raised private sector employment in the receiving areas and changed the sectoral distribution of local employment towards services and away from manufacturing. I also find evidence of displacement. Employers seem to move out of areas at 1-2km distance to a relocation site and move into areas at 0-1km distance. These agglomeration effects appear highly localised: the largest policy impact is found in areas that received the relocated jobs and spillover effects reduce sharply over distance.

Many prior treatments of agglomeration either explicitly or implicitly suppose that all industries agglomerate for the same reasons, with traditional Marshallian (1890) factors affecting all industries similarly. An important instance of this approach is the extrapolation of the agglomeration experience of one key sector or cluster to the larger economy. Another is the pooling of data to look at common tendencies in agglomeration. This paper uses UK establishment level data on coagglomeration to document heterogeneity across industries in the microfoundations of agglomeration economies. The pattern of heterogeneity that we document is consistent with both traditional Marshallian theories and with alternative approaches that emphasize the adaptive and organizational aspects of agglomeration. *Disclaimer: This work was based on data from the Business Structure Database and the Quarterly UK Labour Force Survey, produced by the Office for National Statistics (ONS) and supplied by the Secure Data Service at the UK Data Archive. The data are Crown Copyright and reproduced with the permission of the controller of HMSO and Queens Printer for Scotland. The use of the data in this work does not imply the endorsement of ONS or the Secure Data Service at the UK Data Archive in relation to the interpretation or analysis of the data. This work uses research datasets which may not exactly reproduce National Statistics aggregates. Agglomeration, microfoundations, heterogeneity, clusters