Inter-industry relations and agglomeration economies in Brazil: an approach based on firm creation

Abstract

This study analyzes the effects of the agglomeration mechanisms proposed by Marshall (1920) on the intensity of the economies of localization and urbanization in the manufacturing industry, based on the creation of companies in Brazilian municipalities between 2011 and 2013. For this purpose, the following two-stage procedure was conducted: 1) estimation of regression models for count data to identify the type of agglomeration economy that contributes to new firm location and 2) use of the coefficients obtained in the first stage to assess the industry characteristics related to Marshall’s agglomeration mechanisms that may contribute to differences in the strength of those economies. Due to the results obtained, localization economies are more intense in the industries that employ workers with specific skills of the sector, and thus, can share a pooling of skilled workers. Similarly, knowledge spillovers act in a way to boost the economies of localization, providing an environment conducive to the transmission of knowledge and new ideas. However, localization economies are less intense in industries that have a greater dependence on manufactured inputs and the primary and energy sectors. Urbanization economies, in turn, are negatively related to labor market pooling and knowledge spillovers. On the other hand, the effects of input sharing and dependence on primary inputs on urbanization economies are positive and statistically significant.