AGGLOMERATION AND PRODUCTIVITY: FIRM-LEVEL EVIDENCE FROM TAIWAN'S TEXTILE INDUSTRY.

The "New Economic Geography" theories claim that the geographical concentration can generate externalities through the advantages of knowledge spillover and specialization, thereby promoting firm productivity. This argument is widely supported in studies based on high-tech industries, while its application for traditional industries remains less examined. This paper aims to calculate the degree of agglomeration and its influences on productivity in Taiwan's textile industry. Using plant-level panel data during the periods of 1997-2000 and 2002-2003, we find the textile industry has high geographic concentration. Econometric estimates show that geographic agglomeration has a positive and nonlinear relationship with firms' productivity, particularly for small firms. Moreover, R&D exhibits a significantly positive impact on productivity, suggesting that innovation remains a key factor promoting productivity for the traditional industry of textiles in Taiwan. [ABSTRACT FROM AUTHOR]