The effects of Agglomeration on the Formation and Scale of Operation of New Firms.

Abstract

The formation of new firms is an important determinant of economic and regional development. The literature on industrial organization highlights agglomeration as one of the main factors enhancing the formation and scale of operation of new firms. Using data from the Directory of Industries, this study estimates a model that determines the effect of local conditions on new firms’ formation and scale of operation in the manufacturing sector in Punjab, Pakistan. Our findings reveal that agglomeration through localization and urbanization has a strong impact on the formation of new firms and their scale of operation.