Labor Pooling as a Determinant of Industrial Agglomeration.

Abstract

This paper analyzes the agglomeration behavior exhibited by manufacturing firms in Punjab. Employing a unique dataset, it constructs a distance-based measure of agglomeration to verify the existence of localization economies. The M function—the industry-level measure of concentration—is regressed on a number of industry characteristics that measure the presence of positive externalities. In particular, a measure of each industry’s potential for labor pooling is used to determine whether firms that experience greater fluctuations in employment are likely to be more concentrated. The results provide evidence of the importance of labor pooling in explaining the high level of concentration within industries.