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Industry and Innovation

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The Determinants of Spatial Concentration:

The Manufacturing and Service Sectors in an
International Perspective
Pontus Braunerhjelm

a b

& Dan Johansson

Linkping University

Center for Business and Policy Studies (SNS), Stockholm

Ratio Institute, Stockholm, Sweden

Version of record first published: 14 Jul 2010

To cite this article: Pontus Braunerhjelm & Dan Johansson (2003): The Determinants of Spatial Concentration: The
Manufacturing and Service Sectors in an International Perspective, Industry and Innovation, 10:1, 41-63
To link to this article: http://dx.doi.org/10.1080/1366271032000068096

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Industry and Innovation, Volume 10, Number 1, 4163, March 2003

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THE DETERMINANTS OF SPATIAL

CONCENTRATION: THE
MANUFACTURING AND SERVICE
SECTORS IN AN INTERNATIONAL
PERSPECTIVE
PONTUS BRAUNERHJELM AND DAN JOHANSSON
fter being neglected for several decades, the forces and implications of the
locational pattern of firms have recently become a focal issue in economic
analysis.1 The questions addressed stretch from general equilibrium effects of alterations in costs of production and costs of market access on the location of production,
to issues of a more partial character, such as local network externalities, industrial
districts and spillover effects.
Particular attention has been paid to agglomeration forces, i.e. to what extent
production is concentrated to geographically well-defined regions. Since concentration
of production tends to increase the costs of locally available factors of production,
one question concerns the exact nature of the benefits of spatial concentration
required to overcome such cost disadvantages. The dominant theoretical rationale for
agglomeration economies to occur relies on productivity effects. In particular, spatial
concentration of economic activities occurs in order to either exploit economies of
scale or reap the benefits of pecuniary (demand and supply linkages) and nonpecuniary (knowledge) spillovers (Ciccone and Hall 1996; Fujita et al. 1999).
Furthermore, these factors interact with trade costs, i.e. the costs of supplying a
market from a more distant location.
Despite the considerable theoretical advances made in this field of economics,
empirical research is surprisingly scarce. Notable exceptions are studies on the
regional dispersion of production in the USA (Ellison and Glaeser 1994, 1997; Kim
1995, 1999; Hanson 1998). There are also a couple of papers studying the effect of
the European integration process on concentration of production (Amiti 1998;
Haaland et al. 1998; Midelfart-Knarvik et al. 2000), but remarkably few consider
spatial concentration within countries. Building on the work by Ellison and Glaeser,
Maurel and Sedillot (1999) have recently presented a comparison of regional concentration of the manufacturing sector in France and the USA, however.
The purpose of this paper is to draw on these previous contributions, particularly
the studies by Ellison and Glaeser (1997) and Maurel and Sedillot (1999), in order to
examine the spatial concentration of Swedish production, and how it compares with

1 Financial support from The Swedish Council for Work Life Research (RALF) is gratefully acknowledged.

1366-2716 print/1469-8390 online/03/010041-23 2003 Taylor & Francis Ltd

DOI: 10.1080/1366271032000068096

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42

INDUSTRY AND INNOVATION

that of France and the USA. This will be achieved by implementing a unique Swedish
data-set embracing total Swedish production at the four-digit ISIC level for the years
1975 and 1993, which contains detailed information on regional distribution of
production, size classes, trade costs and knowledge intensity.
The analysis will be pursued stepwise. First, we will examine the pattern of
spatial concentration at an aggregate level, emphasizing the differences between
and the dynamics withinthe manufacturing and service industries by calculating
EllisonGlaeser concentration indexes (henceforth denoted EG-indexes) for 1975
and 1993. As an alternative measure of concentration, we will also present results
based on locational Gini-coefficients. In addition, a comparison of regional concentration in France, Sweden and the USA will be presented. Second, through regression
analysis, we proceed with a detailed analysis of regional concentration in the Swedish
manufacturing sector. More precisely, we test to what extent knowledge intensity,
production technology, transportation costs, raw material intensity, initial regional
concentration and, finally, the size and growth of industries, are capable of explaining
geographically concentrated production structures.
The rest of the paper is organized as follows. In the next section, we briefly
survey some of the more influential and important research contributions in this area.
We then present the measures of geographical concentration that will be implemented
in the analysis. Thereafter, data, empirical method and the hypotheses are discussed,
followed by the results of the empirical model, and then some concluding remarks.

PREVIOUS RESEARCH ON SPATIAL CONCENTRATION

In the theoretical literature, two main mechanisms promoting spatial concentration
have been suggested: First, the possibility to reap localized knowledge spillovers is
argued to foster concentration in location. Spillovers on the industry level have a
positive impact on firm level productivity, which also compensates for higher production costs that may appear where there is a dense location of firms. Such nonpecuniary linkages are claimed to be particularly relevant for knowledge, or R&Dintensive, firms. Second, which relates to the explanations appearing already in the
late 19th and the beginning of the 20th century, pecuniary linkages, i.e. supply and
demand linkages, have been claimed to promote spatial concentration. Hence, firms
locate where demand is large, large markets allow a higher degree of specialization,
and an increased exploitation of economies of scale, etc. Together, these demand and
supply linkages tend to attract other firms and, as Myrdal (1957) puts it, a process of
cumulative causation is initiated.
In the general equilibrium tradition of modeling economic activities, it was not
until the early 1990s, when Krugman (1991a, b) picked up the thread from Marshall
(1890), Weber (1909), and Isard (1956), to mention a few, that locational issues reentered the research agenda in international economics.2 In a trade theoretical
framework, containing two sectors (agriculture and manufacturing) and where one
unit of labor equals one firm, Krugman demonstrated how a small regional difference
in wages might shift the entire manufacturing sector into one region. Hence, by
2 For a more extensive survey, see Braunerhjelm and Carlsson (1999).

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DETERMINANTS OF SPATIAL CONCENTRATION

43

allowing labor mobility, it was shown how sensitive equilibrium was to small
parametric changes. The dynamics of these forces tends to induce centripetal forces
fostering agglomeration. Depending on trade costs, and the production technology
(plant or multi-plant economies of scale), these agglomeration effects could either be
reinforced or dampened. Since then, this line of research has been further developed
by a number of scholars (e.g. Brainard 1993; Markusen 1995; Venables 1996). The
analytical results of these models have also been questioned, however. For instance,
Davis (1999) shows that the results in Krugmans model vanish if the assumption of
immobility of agricultural labor is relaxed. Furthermore, Puga (1999) discusses the
importance of the degree of labor mobility.
In a partial equilibrium setting, economic geographers have, for a long time, studied
spatial aspects of economic activities. Valuable insights into the mechanisms and
driving forces behind the pattern of location have, for instance, been provided by
detailed studies on local industrial systems (Markusen et al. 1986; Storper and Walker
1989; Harrison 1992; Saxenian 1994; Markusen 1996). One issue of particular interest
concerns the influence of knowledge factors on the spatial distribution of economic
activities. In a comprehensive study of the localization of innovations, Feldman (1994)
concludes that the rate of innovation can be linked to specific geographic clusters.
The importance of knowledge factors, measured in terms of R&D spending or
innovative performance, has been highlighted in a number of empirical studies, e.g.
by Thomas (1985), Sweeney (1987), Jaffe (1989), Jaffe et al. (1993), Audretsch (1995),
Anselin et al. (1997), Audretsch and Feldman (1996), Audretsch and Stephan (1996),
and Varga (1998), to mention a few.3 Overall, the conclusion is that knowledgeintensive activities tend to be spatially concentrated.4
However, results to the contrary are also reported here. In particular, Krugman
(1991a), applying regional Gini-coefficients, asserts that the same degree of concentration prevails in typically low-tech industries, for instance textiles (see also Porter
1998).5 Ellison and Glaeser (1994, 1997) implement a more sophisticated concentration measure (the EG-index) than the rather crude Gini-coefficients. The EG-index is
constructed to control for differences in the size distribution of plants across
industries. In principle, the EG-index displays to what extent regional concentration
deviates from a dartboard distribution of production. Ellison and Glasear conclude
that almost every industry at the SIC four-digit level is more concentrated than what
would be the case if locational choices were completely independent between plants.
Still, the degree of concentration is relatively moderate. Further, Maurel and Sedillot
(1999), applying Ellison and Glaesers methodology, report a corresponding degree
of concentration in France, albeit somewhat lower, on average, than in the USA. In
3 Some studies also claim that after a certain level of concentration has been reached, dis-economies of
agglomeration appear due to the increased demand for labor and upward pressure on wages (Tran 1986;
Hansen 1990). This seems to suggest that labor intensive production, which is sensitive to differences in relative
costs (homogeneous goods), would be less clustered. This has generated the idea of an optimal size of clusters,
which has also gained some empirical support (Wheaton and Shisido 1981; Barkely 1988; Dieprink and Nijkamp
1988).
4 This relates to Griliches (1979) knowledge production function.
5 In Europe, Haaland et al. (1998) find weak support for human capital intensity in inducing regional concentration.
Braunerhjelm and Svensson (1996) show how high-tech multinational firms are more likely to invest in
agglomerated regions.

44

INDUSTRY AND INNOVATION

general, regional concentration on average seems to be lower in Europe than in the

USA (Braunerhjelm et al. 2000).
To summarize, according to the literature, the mechanisms behind spatial concentration are pecuniary (demand and supply) and non-pecuniary (knowledge spillovers)
linkages, since they reduce the costs of production. In the presence of economies of
scale on the plant level, sizeable markets have the same effect. Finally, the effect of
costs of market access on regional concentration depends on the initial levels of trade
costs, as well as the levels of the above-mentioned variables.

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MODELING GEOGRAPHIC CONCENTRATION

We take the EG-index as our point of departure, even though we will also elaborate
with locational Gini-coefficients. The obvious advantage of the EG-index is that it
takes both the size distribution of plants and the number of plants into account,
which facilitates international comparisons of the spatial distribution of economic
activities. Another strength of the EG-index is that it is derived from a standard profitmaximizing behavior of the firm, taking into account potential spillover gains due to
the presence of other firms, or natural factors such as endowments. More precisely,
when locations of plants are independent, i.e. there is no influence on location from
other plants, stemming from spillovers from other plants, or the proximity to natural
factors.
Adopting the same notation as in Ellison and Glaeser (1997), let N refer to the
number of industry plants, z1, z2, . . . , zN to the share of each plant in industry
employment, M to the number of geographic regions, s1, s2, . . . , sM to the share of an
industrys total employment in each region and x1, x2, . . . , xM to the fraction of
aggregate employment in the respective region. Geographic concentration of an
industry (G), and the Herfindahl index (H), are defined as follows:6
M

G ; (si xi)2, H ; z2j .

i1

j1

Then, the EllisonGlaeser index of concentration is defined as



 

c G 1; x2i H
i



1 ; x2i
i

(1H).

(1)

This expression takes on a value of zero in the absence of agglomeration forces,

whereas all values exceeding zero imply that location is not independent of the
location of other firms. According to Ellison and Glaesers somewhat arbitrary
definition of concentration, a c\0.02 implies that industries are regionally dispersed,
whereas a c in the range 0.020.05 is equivalent to moderate concentration and all
values above 0.05 are defined as strong regional concentration.
6 For details of the derivation of expression (1), see Ellison and Glaeser (1997).

DETERMINANTS OF SPATIAL CONCENTRATION

45

Turning to the locational Gini-coefficients (GC), these are calculated as follows:7

n

GC0.5 ; (Fi1 Fi)gi (1Gn)0.5

(2)

i1

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where Fi is the cumulative of each regions share of national employment in industry

i at the four-digit level, gi is each regions share of national employment in the
corresponding industry at the one-digit level, Gn is the cumulative of gi and, finally, n
represents the number of regions with employment in an industry at the four-digit
level. According to this index, the concentration can range between 0.5 (strong
concentration) and 0 (dispersed production).

DATA, EMPIRICAL MODEL AND HYPOTHESES

Data
Statistics Sweden (1975, 1993) has compiled a data-set covering all establishments
and employees in Sweden in the years 1975 and 1993. The data are distributed on 70
regional areas that consist of a geographical aggregate of municipalities based on the
location of production. The data are classified according to the ISIC classification
system and are available at the four-digit level for both the manufacturing and the
service industries, and they are distributed on size classes.8 Hence, data are crosstabulated on industries and regions.
At the same four-digit level of aggregation, data have also been collected for the
following variables: average establishment size measured in terms of employees
(TECH), knowledge intensity as captured by the relation between wages of nonproduction and production workers (SKILL), and the share of transportation costs
out of total turnover (TRA). In the present study, trade costs equal costs of transportation, since we are concerned with the regional distribution of production within a
country. This is a considerable advantage, since measures of trade costs between
countries, including tariff and non-tariff barriers, are of questionable quality and may
introduce distortions also affecting the estimates of the other variables.
In Table 1, industries have been classified in descending order according to our
skill variable. Industries regarded as high-tech, e.g. office, computing and accounting
machinery (ISIC 3825), drugs and medicines (ISIC 3522) and measuring and controlling equipment (ISIC 3851) are ranked among the top knowledge-intensive industries.
Low-tech industries, such as wood and cork products (ISIC 3319), sawmills, planing
and other wood mills (ISIC 3311) and slaughtering, meat products (ISIC 3111), all
have a low rank according to this measurement. Thus, we conclude that the relation
between wages of non-production and production workers is an acceptable proxy
for skill intensity.9
7 For details, see Krugman (1991a).
8 In 1993, the data-set covers all establishments and the total number of employees. However, it was not until the
beginning of the 1980s that more detailed data about the public sector were compiled. Thus, regional
concentration for the year 1975 is uncertain for industries dominated by governmentally owned enterprises.
This is particularly relevant for ISIC 720 and several of the industries in ISIC 9.
9 See also Berman et al. (1994) for a justification of using this variable as a proxy for skill intensity.

46

INDUSTRY AND INNOVATION

TABLE 1: RANK ACCORDING TO KNOWLEDGE INTENSITY

Rank

ISIC

1
2
3
4
5
61
62
63
64
65

3825
3522
3851
3832
3521
3812
3117
3111
3311
3319

Salaries/
wages
Manufacture of office, computing and accounting machinery
Manufacture of drugs and medicines
Manufacture of professional and scientific, and measuring and controlling equipment
Manufacture of radio, television and communication equipment and apparatus
Manufacture of paints, varnishes and lacquers
Manufacture of furniture and fixtures primarily of metal
Manufacture of bakery products
Slaughtering, meat products
Sawmills, planing and other wood mills
Manufacture of wood and cork products not elsewhere classified

3.47
3.15
2.50
2.08
1.85
0.41
0.40
0.39
0.36
0.30

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Source: Statistics Sweden (1993) and own calculations.

Empirical analysis
We take a two-step approach in the empirical analysis. First, we show the spatial
concentration of production in the manufacturing and service industries, i.e. we
calculate the EG-indexes and the locational Gini-coefficients for the manufacturing
and service sectors, respectively. We examine how concentration has changed in the
period 197593, the rank stability across industries, and whether differences across
the manufacturing and service industries can be detected. Finally, we compare the
concentration in the Swedish manufacturing sector with that of France and the USA.
Thereafter, we proceed with a regression analysis. This part of the analysis contains
a more rigorous attempt at econometrically pinning down the determinants of
concentration at the four-digit level. Due to data limitations, this analysis is restricted
to the manufacturing sector. We elaborate with two different specifications of the
econometric model. In the first run of regressions, we estimate which variables have
influenced the level of concentration in manufacturing production, as defined by our
concentration variables (the EG-index and the Gini-coefficient in 1975 and 1993). In
the subsequent step, we study the changes in regional concentration between 1975
and 1993, i.e. the variables are defined as a change over time expressed as a
percentage. All level data are expressed in logarithms, and the regressions are
corrected for heteroscedasticity by applying Whites (1980) method. There are no
signs of autocorrelation in the error term and the standard properties are assumed to
prevail, N(0, p2), and E(ei ej)0 for ij.10 Hence
conci,t a0 a1 techi,t a2 skilli,t a3 trai,t a4 zi,t ei,t

(3)

*CONCi b0 b1 *TECHi b2 *SKILLi b3 *TRAi b4 *Zi ei

(4)

and

where the dependent variable conc refers to regional concentration, expressed

either as an EG-index or a Gini-coefficient, i stands for industry and t denotes time,
10 Observe that E(eijt eijs )0 for ts, since an industry i which is concentrated to region j in time t, can also be
expected to be concentrated to the same region in time s. This will not yield inconsistent parameter estimates,
however.

DETERMINANTS OF SPATIAL CONCENTRATION

47

i.e. 1975 or 1993, respectively. In expression (4), the dependent variable is calculated
as the change in regional concentration (levels) between 1975 and 1993 in the
following way:

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*CONCi (CONC93i CONC75i)/CONC75i .

(5)

Alternatively, we will regress the changes in the independent variables on the level
of regional concentration in 1993.
In addition to our main explanatory variables skill, production technology and trade
costs, all defined above, we have also implemented a few control variables contained
in vector Z. These are the following: the relative size of the industry, measured as the
industrys share of total manufacturing employment (INDSIZE), and the industrys
dependency on raw material, measured as a cost share of total turnover (RAW). In
addition, in some of the estimations where the dependent variable is regional
concentration in 1993 (CONC93), we have incorporated the initial level of concentration as an explanatory variable (CONC75). Finally, dummies for industries (DI) at the
three-digit level have also been implemented to capture industry-specific effects.
When we apply change over time expressed as a percentage in the regressions, the
explanatory variables are identical to those defined above.

Hypotheses
Two sets of hypotheses will be tested. A first hypothesis of a more general character
concerns the pattern of spatial concentration across the different industries. We
expect manufacturing industries (ISIC 3) to be more spatially concentrated, on
average, than service industries (ISIC 69). The reason is that service production is,
to a large extent, based on the proximity to customers/markets, leading to a more
dispersed production. Moreover, plant level economies of scale predominantly appear
in manufacturing production, being more capital and R&D intensive. Hence, these
inherent differences between manufacturing and service industries, such as retail
trade, banks and repair services, should show up in different levels of regional
concentration. Moreover, we expect concentration to be increasing over time due to
deregulation and less expensive transport.
As regards the inter-country comparison, we do not have any a priori expectations
concerning the relation between France and Sweden. The USA can be expected to
be the most concentrated country since deregulation started much earlier there,
allowing firms to exploit agglomeration economies in their locational decisions. It has
also been shown that regional concentration is, on average, stronger in the USA than
in Europe (Braunerhjelm et al. 2000; Midelfart-Knarvik et al. 2000). Hence, we expect
it to be lower in Sweden as compared to the USA.
Second, turning to the econometric analysis, our hypotheses are based on the
predictions that stem from the theoretical advances on locational issues, briefly
referred to in the second section. Linkages, predominantly knowledge spillovers, are
assumed to have a positive impact on productivity, thereby promoting the concentration of production. A higher share of non-production workers in relation to production
workers (SKILL) is consequently assumed to exert a positive impact on concentration
of production. As mentioned above, a number of studies have concluded that

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48

INDUSTRY AND INNOVATION

knowledge spillovers are sticky, i.e. they are spatially concentrated to certain
regions.
As regards pecuniary linkages, i.e. relations to suppliers and customers, no data are
available that directly capture these relations.11 To some extent, such linkages are
captured by regional concentration of production appearing in the base year 1975.
Regions that were specialized in a certain industrial production in 1975 can be
expected to be relatively abundant in suppliers of components and complementary
products, and in labor with the appropriate skill structure, for that particular industry.
Therefore, we apply the initial regional concentration as a proxy for such linkages.
Note, however, that this variable could also be viewed as a proxy for pathdependence, i.e. initially concentrated regions tend to remain so over time. We
expect regional concentration in the base year 1975 to be positively related to
concentration in 1993.
The second core determinant of spatial concentration is related to production
technologies (TECH). Since we have data on employment distributed on industries
and size classes, we will adopt the average establishment size in the respective fourdigit industry as our proxy for production technology. Average establishment size
may be associated with plant level economies of scale, which theory predicts to be
positively associated with concentration of production. However, according to the
definition of the EG-index, scale effects should not influence this measure of regional
concentration, implying that the TECH variable may capture effects associated with
the labor market, such as the pooling of specific skills. Alternatively, regulations could
also have fostered larger plants in certain industries.12 Consequently, the results must
be interpreted with caution.
The final major determinant of regional concentration adheres to trade costs. Here,
it is measured as a cost share in relation to turnover at the four-digit industry
level. Thus, considering that we are examining regions within a country, a pure
transportation cost measure is applied. We expect low trade costs to be positively
related to the degree of spatial concentration.
The interpretation of this variable is somewhat intriguing, however. At the industry
level, spatially concentrated industries may also have high transportation costs. This
could, for example, be the case for the Swedish forest and steel industries.
Furthermore, industries with a large dependence on raw material could be expected
to locate either close to these resources or in regions with good transport facilities
(ports, railroad communications, etc.). To account for these effects, we have included
an explanatory variable defined as the costs of raw material in relation to turnover
(RAW). This variable is expected to have a positive effect on geographical concentration. We will also investigate whether industries exposed to high trade costs in 1975
have had a higher propensity to concentrate production as compared with other
industries.
11 The closest measure of such linkages is probably inputoutput matrices. However, at this level of aggregation,
data on inputoutput structures are not available. For an application of inputoutput matrices at a more
aggregated level, see Braunerhjelm and Carlsson (1999).
12 For instance, Davis and Henrekson (1999), and Henrekson and Johansson (1999), claim that tax and labor
regulations have had an impact on the size distribution of firms, which differs across the industries in the
Swedish manufacturing sector.

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DETERMINANTS OF SPATIAL CONCENTRATION

49

Concerning the remaining control variables, more sizeable industries can, in general,
be expected to be more regionally dispersed than smaller industries. To control for
that effect, we include the relative size of the respective industry in the regressions
(INDSIZE).
As we look at the dynamic pattern, i.e. the changes between 1975 and 1993, we
hypothesize that the industries becoming more knowledge intensive, experiencing
substantial falls in trade costs and increased average size in terms of employees,
should also have become more concentrated. The size variable (INDSIZE) now
controls for growth in the respective industry. It is likely that industries growing faster
will also be more dispersed as compared with declining industries. Concentration in
the base year (CONC75i ) will now be implemented as a control variable for the level
of concentration in that year. If there has been a general trend towards regional
concentration, it is conceivable that strong concentration already in 1975 implies a
lower rate of change for a particular industry, as compared with other industries less
concentrated in 1975 (path-dependence). On the other hand, if agglomeration
economies exert a strong positive influence on performance at the plant level, then
initially concentrated production is likely to have had the greatest impact on location
in the period up to 1993.
The definitions and expected signs of the explanatory variables are summarized in
Table 2.
TABLE 2: DESCRIPTION OF VARIABLES

Variables

Description and source

EllisonGlaeser concentration
indexes 1993 (CONC93) and
1975 (CONC75)
Locational Gini-coefficients

Employment data, four-digit ISIC level.

Source: Statistics Sweden (1975, 1993), the Central
Register of Enterprises and Establishments.
Employment data, four-digit ISIC level.
Source: Statistics Sweden (1975, 1993), the Central
Register of Enterprises and Establishments.
The quotient between wages of non-production and
production workers, four-digit ISIC level.
Source: Statistics Sweden (1975, 1993), The Annual
Report of Manufacturing.
Average establishment size, four-digit ISIC level.
Source: Statistics Sweden (1975, 1993), The Annual
Report of Manufacturing.
The costs of raw materials related to turnover, fourdigit ISIC level.
Source: Statistics Sweden (1975, 1993), The Annual
Report of Manufacturing.
The costs for transportation related to turnover, fourdigit ISIC level.
Source: Statistics Sweden (1975, 1993), The Annual
Report of Manufacturing.
The share of employment in one industry related to
total employment in similar industries, four-digit ISIC
level.
Source: Statistics Sweden (1975, 1993), The Annual
Report of Manufacturing.

Knowledge intensity 1993 or

1975 (SKILL)

Production technology 1993

and 1975 (TECH)
Costs of raw material 1975 or
1993 (RAW)

Transportation costs 1993 or

1975 (TRA)

Size of the industry 1993 or

1975 (INDSIZE)

Expected effect
on spatial
concentration

50

INDUSTRY AND INNOVATION

RESULTS
Regional concentration

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As a first observation, we note that the correlation between the EG-index and the
locational Gini-coefficients is indeed quite low. For both 1975 and 1993, the correlation
coefficient is about 0.44.13 Consequently, depending on which concentration measure
is chosen, the results may differ considerably. For reasons described above, we believe
that the EG-index gives a more accurate picture of regional concentration, but we
will also report some results based on locational Gini-coefficients since that measure
has been applied in previous research, notably that of Krugman (1991a).

Manufacturing
Starting with a more aggregated level (two-digit level), the distribution of the
Swedish manufacturing industries on dispersed, moderately concentrated and strongly
concentrated industries is shown in Table 3.14 The classification into the respective
categories follows that of Ellison and Glaeser, that is, a value of c\0.02 means that
an industry is regionally dispersed, whereas a c in the range 0.020.05 defines
moderately concentrated industries, and a c[0.05 implies a strong regional concentration. More than 50 percent of the Swedish manufacturing industries fall into the latter
category, i.e. the most concentrated one, and barely somewhat more than 20 percent
can be linked to the least concentrated category. Hence, the overall picture is a quite
concentrated structure in the Swedish manufacturing sector.
Turning to a somewhat finer level (four-digit), the degree of geographical concentration of manufacturing industries is illustrated in Figure 1. Applying the same yardstick
as Ellison and Glaeser, all of the 30 most concentrated industries have an EG-index
exceeding 0.06, implying that all of them are defined as highly concentrated. (The
details for the 30 most concentrated industries are given in Table 4.) The average and
median values for all manufacturing industries are 0.063 and 0.051, respectively. This
is considerably higher than for the USA, where the corresponding values are 0.051
and 0.026 (Ellison and Glaeser 1997).
The EG-index of the 10 most concentrated industries ranges from to 0.417 (knitting
mills, ISIC 3213) to 0.154 (sugar factories and refineries, ISIC 3118). There is nothing
in the data at this level suggesting that knowledge-intensive industries are more likely
to be spatially concentrated than other industries. Rather, a contrary pattern is
revealed, which is in line with Krugmans (1991a) findings. The only obvious hightech industry among the top 10 is Manufacturing and repair of aircraft (ISIC 3845),
ranked number four. The next knowledge-intensive industry appears in 15th place,
that is, Manufacture of office, computing and accounting machinery (ISIC 3825).
The remaining industries are all low-tech. In general, there are few knowledgeintensive industries among the 30 most concentrated industries. Note that a similar
pattern emerges among the 15 least concentrated industries (Table 5), where one
13 This is about the same magnitude as in Maurel and Sedillots (1999) study.
14 The US and Swedish data are classified according to the SIC and ISIC classification system, respectively. The two
classification systems are comparable at an aggregated level, while it is more difficult to get a correspondence at
a disaggregated level.

DETERMINANTS OF SPATIAL CONCENTRATION

51

TABLE 3: REGIONAL CONCENTRATION AT THE TWO-DIGIT (SIC) LEVEL IN SWEDEN (1993)

USA (1987), MANUFACTURING INDUSTRIES

AND THE

Percentage of four-digit industries with:

c\0.02

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Two-digit industry
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
35
36
37
38
39

Food and similar products

Tobacco industries
Textile mills products
Apparel and other textile products
Lumber and wood products
Furniture and fixtures
Paper and allied products
Printing and publishing
Chemicals and allied products
Petroleum and coal products
Rubber and miscellaneous plastics
Leather and leather products
Stone, clay and glass products
Primary metals industries
Fabricated metals products
Industrial machinery and equipment
Electronic and other products
Transportation equipment
Instruments and related products
Miscellaneous manufacturing industries
Average

c[0.02, 0.05]

c[0.05

USA

Sweden

USA

Sweden

USA

Sweden

47
0
9
13
29
69
53
71
38
60
73
0
58
39
61
49
41
28
47
44
41

53
n.a.
0
0
0
0
33
100
29
100
0
0
0
0
0
17
0
20
67
25
23

18
0
13
42
47
8
47
14
24
0
27
36
27
35
32
26
46
33
41
22
27

20
n.a.
17
0
0
0
33
0
0
0
50
0
67
0
75
67
25
20
0
25
21

35
100
78
45
24
23
0
14
38
40
0
64
15
27
8
26
14
39
11
33
32

27
n.a.
83
100
100
100
33
0
71
0
50
100
33
100
25
17
75
60
33
50
56

Source: Ellison and Glaeser (1997: Table 3), Statistics Sweden (1975, 1993) and own calculations.

obvious high-tech industry can be discerned (the manufacture of photographic and

optical goods, ISIC 3852).
Another conspicuous feature is that in 19 out of the 30 industries, the concentration
increased between 1975 and 1993, resulting in an overall more concentrated structure.15 This development has been paralleled by a decrease in employment in 26 of
these 30 industries, indicating productivity improvements in that period. Moreover,
even though industries have changed in terms of degree of concentration, the rank
stability has been relatively strong between 1975 and 1993, as confirmed by a
Spearman rank correlation test.16
If we instead implement the Gini-coefficients, a similar pattern emerges. However,
as shown in Table 4, the ranking of industries depends heavily on the applied measure.
Comparing the top 10 concentrated industries according to the EG-index, with the
similarly 10 most concentrated industries using the locational Gini-coefficients, the
industries only coincide in four cases. Naturally, this reflects the low correlation
between the two indexes.
15 Data are available upon request.
16 In the case of the EG-indexes, the Spearman rank correlation coefficient is 0.62. Compared with the EG-index in
1975, only five of the most regionally concentrated industries at that time remain in 1993. Applying the locational
Gini-coefficients, the rank correlation increases to 0.88. In both cases, significance is attained at the 1 percent
level.

52

INDUSTRY AND INNOVATION

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FIGURE 1: HISTOGRAM OF c, SWEDISH MANUFACTURING INDUSTRIES, FOUR-DIGIT LEVEL, 1993.

Source: Statistics Sweden (1993) and own calculations.

Services
As regards the service industry, a first observation is that concentration is much less
evident than in manufacturing (Figure 2). Among the 30 most concentrated industries
(Table 6), the EG-index ranges from 0.322 (air transport carriers, ISIC 7131) to 0.014
(other repair shops not classified elsewhere, ISIC 9519). The average EG-index is
0.011 whereas the median is 0.013, i.e. considerably below the concentration in
manufacturing. Considering the least concentrated service industries, we also note
that retailing industries are well represented (Table 7), which is also in line with our
expectations.
However, the most prominent difference as compared with manufacturing relates
to the dynamics of the two sectors. In the service sector, spatial concentration has
declined in 22 out of 30 service industries. Similarly, 22 service industries have
experienced employment growth between 1975 and 1993, which stands in sharp
contrast to the manufacturing sector.17 In addition, it seems as if knowledge-intensive
industries are more frequently represented among the top 10 most concentrated
service industries, as compared with the manufacturing sector. For instance, Air
transport carriers (ISIC 7131), Financial services (ISIC 8103), Other financial
institutions (ISIC 8102), Radio and television broadcasting (ISIC 9413), and Advertising services (ISIC 8325), could all be claimed to belong to the knowledge-intensive
17 Data on the change in regional concentration are available upon request. As noted above, the information for the
public sector is shaky for 1975, particularly with respect to ISIC 720 and several of the industries in ISIC 9, and
the result for these industries must be interpreted with caution.

DETERMINANTS OF SPATIAL CONCENTRATION

53

TABLE 4: ELLISONGLAESER COEFFICIENTS IN THE 30 MOST CONCENTRATED MANUFACTURING

1993, RANK IN 1975, RANK ACCORDING TO GINI-COEFFICIENTS, AND PERCENTAGE

INDUSTRIES IN

CHANGE IN EMPLOYMENT

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Rank
EG 93

ISIC
code

1
2
3
4
5
6
7

3213
3115
3114
3845
3691
3211
3233

8
9

3559
3529

10
11
12
13
14
15

3118
3512
3231
3214
3215
3825

16

3849

17
18
19

3113
3903
3831

20
21
22
23
24
25
26
27
28
29

3232
3909
3513
3833
3411
3522
3319
3219
3843
3511

30

3311

Change
empl.
7593
(%)

Activity

EG 93

Rank
EG 75

Rank
Gini
93

Knitting mills
Manufacture of vegetable and animal oils and fats
Canning, preserving and processing of fish
Manufacture and repair of aircraft
Manufacture of structural clay products
Spinning, weaving and finishing textiles
Manufacture of products of leather and leather
substitutes
Manufacture of rubber products not elsewhere defined
Manufacture of chemical products not elsewhere
classified
Sugar factories and refineries
Manufacture of fertilizers and pesticides
Tanneries and leather finishing
Manufacture of carpets and rugs
Cordage, rope and twine industries
Manufacture of office, computing and accounting
machinery
Manufacture of transport equipment not elsewhere
classified
Canning and preserving of fruits and vegetables
Manufacture of sporting and athletic goods
Manufacture of electrical industrial machinery and
apparatus
Fur dressing and dyeing industries
Manufacturing industries not elsewhere classified
Manufacture of synthetic resins, etc.
Manufacture of electrical appliances and housewares
Manufacture of pulp, paper and paperboard
Manufacture of drugs and medicines
Manufacture of wood and cork products
Manufacture of textiles not elsewhere classified
Manufacture of motor vehicles
Manufacture of basic industrial chemicals except
fertilizers
Sawmills, planing and other wood mills

0.417
0.350
0.310
0.227
0.226
0.224

6
41
3
12
4
7

8
3
11
10
16
24

80.98
4.06
40.60
15.75
75.25
66.40

0.202
0.163

18
35

25
19

71.01
48.76

0.159
0.154
0.141
0.138
0.124
0.123

42
9
11
65
15
19

26
7
6
2
13
22

19.46
37.04
57.22
65.25
84.48
68.57

0.105

32

33

32.01

0.102
0.099
0.088

50
28
24

20
21
9

5.79
26.20
54.54

0.086
0.072
0.072
0.071
0.071
0.069
0.065
0.064
0.064
0.063

8
2
34
38
20
27
17
31
10
40

30
4
40
41
18
37
27
50
23
57

41.53
91.03
5.61
2.04
2.30
29.59
75.13
46.94
69.30
21.68

0.062
0.062

25
30

44
60

2.05
44.70

Source: Statistics Sweden (1975, 1993) and own calculations.

sphere. Hence, at least 5 out of the 10 most concentrated industries belong to more
advanced production. Rank stability is also higher in the case of service industries.
Applying locational Gini-coefficients, a similar pattern is once more revealed, but
the ranking of industries is affected. In comparison to the EG-index, only 4 among
the top 10 most concentrated industries coincide. Hence, there seem to be inherent
differences between manufacturing and services, which have been accelerating over
the period studied.

54

INDUSTRY AND INNOVATION

TABLE 5: ELLISONGLAESER COEFFICIENTS IN THE 15 LEAST CONCENTRATED MANUFACTURING
1993, RANK IN 1975, RANK ACCORDING TO GINI-COEFFICIENTS, AND PERCENTAGE

INDUSTRIES IN

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CHANGE IN EMPLOYMENT

Rank
EG 93

ISIC
code

1
2
3
4
5
6
7
8
9
10
11
12
13
14

3134
3131
3119
3133
3852
3523
3121
3822
3842
3902
3112
3117
3851
3419

16

3521

Activity
Soft drinks and carbonated waters industries
Distilling, rectifying and blending spirits
Manufacture of cocoa, etc.
Malt liquors and malt
Manufacture of photographic and optical goods
Manufacture of soap and cleaning preparations
Manufacture of food products
Manufacture of agricultural machinery and equipment
Manufacture and repair of railroad equipment
Manufacture of musical instruments
Manufacture of dairy products
Manufacture of bakery products
Manufacture of measuring and controlling equipment
Manufacture of pulp, paper and paperboard, not
elsewhere defined
Manufacture of paints, varnishes and lacquers

Change
empl.
7593
(%)

EG 93

Rank
EG 75

Rank
Gini
93

0.255
0.061
0.050
0.049
0.040
0.027
0.023
0.023
0.014
0.004
0.004
0.006
0.008

8
2
3
6
7
46
10
48
16
40
9
13
55

34
17
45
15
46
49
51
28
47
31
64
65
55

12.36
28.92
14.35
52.32
10.53
45.36
65.70
78.78
12.22
65.01
3.41
18.30
34.27

0.013
0.016

21
33

53
42

60.63
29.30

Source: Statistics Sweden (1975, 1993) and own calculations.

FIGURE 2: HISTOGRAM OF c, SWEDISH SERVICE INDUSTRIES, FOUR-DIGIT LEVEL, 1993.

Source: Statistics Sweden (1975, 1993) and own calculations.

DETERMINANTS OF SPATIAL CONCENTRATION

55

TABLE 6: ELLISONGLAESER COEFFICIENTS IN THE 30 MOST CONCENTRATED SERVICE INDUSTRIES IN

1993, RANK IN 1975, RANK ACCORDING TO GINI-COEFFICIENTS, AND PERCENTAGE CHANGE IN
EMPLOYMENT

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Rank
EG 93

ISIC
code

1
2
3
4
5
6
7
8
9

7131
8103
9411
8102
9413
6132
7122
8325
6141

10
11

9414
6129

12
13
14
15
16
17
18

8323
6112
9511
7121
8329
6131
6122

19
20
21
22
23
24
25
26
27
28
29
30

8321
6142
9399
7123
6123
9592
7191
9412
7113
9415
7116
9519

Change
empl.
7593
(%)

Activity

EG 93

Rank
EG 75

Rank
Gini
93

Air transport carriers

Financial services
Motion picture production
Other financial institutions
Radio and television broadcasting
Wholesaling of motor fuels and motor oils
Inland water transport
Advertising services
Agent wholesaling of goods mainly for production
purposes
Theatrical producers and entertainment services
Wholesaling of goods for final consumption, not
elsewhere classified
Data processing and tabulating services
Wholesaling of machinery, tools and appliances
Repair of footwear and other leather goods
Ocean and coastal water transport
Business services
Wholesaling of transport equipment
Wholesaling of textiles, wearing apparel and leather
products
Legal services
Agent wholesaling of goods for final consumption
Other social and related community services
Supporting services to water transport
Wholesaling house furnishing goods
Photography
Services incidental to transport
Motion picture distribution and protection
Other passenger land transport
Authors, music composers
Supporting services to land transport
Other repair shops not elsewhere classified

0.322
0.267
0.223
0.209
0.125
0.118
0.091
0.085

2
3
1
6
59
22
24
4

4
16
6
21
8
18
9
40

88.59
1,286.88
179.52
71.85
23.63
50.37
66.82
98.43

0.064
0.056

14
9

23
14

26.84
124.90

0.056
0.052
0.052
0.047
0.047
0.042
0.040

13
12
20
31
10
16
25

26
42
32
11
5
59
24

28.27
467.60
56.08
27.92
81.84
250.64
27.67

0.039
0.035
0.034
0.030
0.026
0.026
0.023
0.020
0.018
0.017
0.016
0.015
0.014

29
19
18
8
26
7
30
28
23
27
15
17
45

17
45
12
34
10
20
13
36
28
46
25
33
22

8.82
188.01
23.57
167.94
7.21
22.07
11.55
40.89
24.56
51.77
279.35
93.89
136.91

Source: Statistics Sweden (1975, 1993) and own calculations.

An inter-country comparison
Tables 8 and 9 present regional concentration in Sweden as compared with that of
France and the USA. We start with a somewhat more aggregate level in Table 8, where
we compare our results with those provided by Maurel and Sedillot (1999) and Ellison
and Glaeser (1997), respectively. Our data are from the same year as in the French
study (1993), whereas the data in Ellison and Glaesers work are somewhat older and
refer to 1987.
Comparing 17 industries (SIC 2), Sweden displays the highest regional concentration
among the three countries in 16 of these industries, whereas Francetogether with
the USAis shown to have the highest concentration in one industry, Instruments

56

INDUSTRY AND INNOVATION

TABLE 7: ELLISONGLAESER COEFFICIENTS IN THE 15 LEAST CONCENTRATED SERVICE INDUSTRIES IN

1993, RANK IN 1975, RANK ACCORDING TO GINI-COEFFICIENTS, AND PERCENTAGE CHANGE IN
EMPLOYMENT

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Rank
EG 93

ISIC
code

1
2
3
4
5
6

9514
6143
6251
9512
6232
6239

7
8
9
10
11
12
13
14
15

7111
6233
7132
6222
6121
6223
9331
9591
6221

Activity
Watch, clock and jewelry repair
Agent wholesaling of transport equipment
Retailing of pharmaceutical preparations
Electrical repair shops
Retailing of house furnishing goods
Retailing of infrequently bought commodities, not
elsewhere classified
Railway transport
Retailing of jewelry, optical and photographic goods
Supporting services to air transport
Retailing of paints and cosmetics
Wholesaling of food, beverages and tobacco
Tobacco, book and stationery retailing
Medical dental and other health services
Barber and beauty shops
Department store of retailing of everyday commodities

Change
empl.
7593
(%)

EG 93

Rank
EG 75

Rank
Gini
93

0.138
0.033
0.003
0.002
0.001

6
18
24
14
10

3
2
57
39
55

91.53
1.31
18.35
1.37
3.07

0.000
0.000
0.000
0.001
0.001
0.002
0.002
0.002
0.002
0.002

28
1
12
0
9
20
21
30
16
11

30
29
62
15
43
38
58
61
47
48

304.84
1,250.82
44.83
408.63
6.25
4.50
48.74
150.19
26.64
25.65

Source: Statistics Sweden (1975, 1993) and own calculations.

TABLE 8: GEOGRAPHIC CONCENTRATION IN THE USA, FRANCE AND SWEDEN ACCORDING TO THE
ELLISONGLAESER INDEX (TWO DIGIT SIC CATEGORIES)
USA 1987
Two-digit industries (US definition)
Textile mills product
Leather and leather products
Furniture and fixtures
Lumber and wood products
Primary metals industry
Instruments and related products
Transportation equipment
Apparel and other industries
Miscellaneous manufacturing industry
Chemicals and allied products
Paper and allied products
Electronic and other electrical equipment
Printing and publishing
Fabricated metal products
Rubber and misc. plastics
Stone, clay and glass products
Industrial machinery and equipment
Average

France 1993

Sweden 1993

Rank

Rank

Rank

0.127
0.013
0.019
0.018
0.018
0.018
0.016
0.016
0.012
0.009
0.006
0.005
0.005
0.005
0.004
0.004
0.003
0.018

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17

0.036
0.039
0.008
0.012
0.01
0.018
0.000
0.020
0.014
0.012
0.007
0.004
0.032
0.003
0.006
0.003
0.002
0.013

2
1
10
8
9
5
17
4
6
7
11
13
3
14
12
15
16

0.141
0.098
0.073
0.061
0.111
0.009
0.047
0.135
0.050
0.022
0.055
0.007
0.004
0.030
0.150
0.047
0.010
0.062

2
5
6
7
4
15
11
3
9
13
8
16
17
12
1
10
14

Source: Maurel and Sedillot (1999) and own calculations.

DETERMINANTS OF SPATIAL CONCENTRATION

57

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TABLE 9: GEOGRAPHIC CONCENTRATION IN THE USA, FRANCE AND SWEDEN, ACCORDING TO THE
ELLISONGLAESER INDEX FOR SPECIFIC THREE-DIGIT (SIC) INDUSTRIES

Three-digit industries

USA
1987
c

France
1993
c

251
252
271
272
273
278
371
372
373
374
375
376

0.058
0.027
0.002
0.067
0.025
0.011
0.083
0.024
0.018
0.123
0.010
0.196

0.01
0.006
0.001
0.371
0.292
0.018
0.000
0.018
0.044
0.045
0.007
0.039

Household furniture
Office furniture
Newspapers
Periodicals
Books
Blankbooks and bookbinding
Motor vehicles and equipment
Aircraft and parts
Ship and boat building and repairing
Railroad equipment
Motorcycles, bicycles and parts
Guided missiles, space vehicles, parts

Sweden
1993
c
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
0.063
0.227
0.041
0.014
n.a.
0.102

Source: Maurel and Sedillot (1999) and own calculations.

n.a.not available.

and related products (Table 8). The USA, on the other hand, is more concentrated
than France, even though the difference is not that large. These findings are also
revealed in the average EG-indexes for Sweden and the USA. Furthermore, simple
correlation reveals a relatively close resemblance between regionally concentrated
industries in France and the USA, whereas France and Sweden display the largest
differences.18 In addition, we have also calculated Spearman rank correlation tests to
examine the ranking of industries within the three countries. It turns out that there
is no statistical significance between the ranking of industries in Sweden and the
other two countries. However, the ranking of concentrated industries in France and
the USA is correlated and significant at the 5 percent level.19
Again, following Maurel and Sedillot (1999), we also provide a comparison of
regional concentration at a more disaggregated level (three-digit level SIC) for a
limited number of industries. These are reported in Table 9. Unfortunately, we only
have five industries at this level that are comparable across all three countries. In four
cases (motor vehicles and equipment SIC 371, aircraft and parts SIC 372, railroad
equipment SIC 372, and guided missiles, space vehicles, parts SIC 376), the USA is
shown to have the most regionally concentrated industries, whereas Sweden has the
second highest concentration in four out of these five industries. Hence, an analysis
at a finer level may modify the results obtained at a more aggregated level.
To summarize this section, Sweden was shown to have the strongest regional
concentration among the three countries, measured by EG-indexes. France and the
USA reveal the largest similarities in terms of degree of concentration and the ranking
of concentrated industries. However, this pattern seems somewhat sensitive to the
degree of aggregation in the analysis.
18 The correlation coefficients are 0.51 between France and the USA, and 0.31 between France and Sweden.
19 The coefficients are as follows: France and the USA (Spearmans rho 0.51), Sweden and the USA (Spearmans rho
0.41), and France and Sweden (Spearmans rho 0.27).

58

INDUSTRY AND INNOVATION

Regression results
The results of the regressions are shown in Tables 10 and 11. Industry dummies have
been implemented in all estimations. The dependent variable is the level of spatial
TABLE 10: REGRESSION RESULTS. DETERMINANTS OF SPATIAL CONCENTRATION. ELLISONGLAESER
INDEX (EG) 1993 AND 1975, AND GINI-COEFFICIENT (GC) 1993

Constant

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TECH
SKILL
TRA
CONC75
INDSIZE
RAW
Adj R
F
DF

Dep. variable
EG 1975
1

Dep. variable
EG 1993
2

7.47***
(3.74)
0.71**
(2.36)
0.15
(0.35)
0.21
(0.10)

5.88
(4.38)
0.62***
(3.13)
0.05
(0.14)
0.18
(0.66)

0.17
(1.37)
0.077
(0.10)
0.50
4.06
54

0.26***
(3.30)
0.21
(0.38)
0.49
8.85
57

Dep. variable
EG 1993
3
3.94**
(2.44)
0.47*
(1.91)
0.08
(0.22)
0.053
(0.21)
0.33**
(2.55)
0.18**
(2.01)
0.23
(0.47)
0.64
8.33
56

Dep. variable
EG 1993
4
3.20
(2.76)***

0.26
(0.61)
0.09
(0.33)

0.17**
(2.10)
0.30
(0.42)
0.39
2.86
57

Dep. variable
GC 1993
5
2.90***
(11.08)
0.25***
(7.22)
0.02
(0.47)
0.03
(0.65)

0.15***
(8.70)
0.01
(0.16)
0.68
9.87
57

Note: ***p\0.01; **p\0.05; *p\0.10. Industry dummies not shown, available upon request.

TABLE 11: REGRESSION RESULTS. SPATIAL CONCENTRATION, CHANGE OVER TIME 197593 AND
LEVEL 1993, ELLISONGLAESER INDEXES (EG) AND GINI-COEFFICIENT
Dep. variablechange in
EG-index 197593
1
Constant
*TECH
*SKILL
*TRA
*INDSIZE
*RAW
CONC75
Adj R2
F
DF

24.61
(0.085)
6.33
(1.02)
1.06
(0.80)
0.017
(0.51)
0.09***
(2.58)
0.01
(0.22)

0.23
2.17
53

2
12.95
(0.042)
7.18
(1.19)
0.27
(0.22)
0.011
(0.30)
1.13
(0.40)
0.90
(0.18)
3,083.58
(1.16)
0.34
0.79
52

Dep. variablelevel in EG-index and GC-coefficient 1993

3

EG
4

0.048
0.05
0.01
(1.09)
(1.63)
(0.31)
(0.001**
(0.9 E4*

(2.50)
(1.79)
0.36 E5*
0.2 E4
0.4 E4*
(1.74)
(1.63)
(1.70)
(3.55 E06
2.11 E06
0.00
(0.83)
(0.54)
(0.79)
0.3 E5
0.30 E4
0.2 E4
(0.083)
(0.87)
(0.64)
0.11 E5
0.3 E4
0.2 E4
(0.17)
(0.51)
(0.34)

0.62***
0.69***
(4.67)
(5.32)
0.44
0.59
0.51
9.48
5.56
7.96
53
52
53

Note: ***p\0.01; **p\0.05; *p\0.10. Industry dummies not shown, available upon request.

GC
6
0.36***
(6.77)
0.0003
(1.00)
2.0 E5
(1.12)
9.53 E05
(0.20)
(0.001*
(1.83)
9.99 E05
(0.20)

0.18
1.89
53

DETERMINANTS OF SPATIAL CONCENTRATION

59

TABLE 12: CORRELATION MATRIX, 1993

EG

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EG
Skill
Tech
Raw
Tra
Indsize

1
0.06
0.05
0.09
0.01
0.11

Skill

Tech

Raw

Tra

Indsize

1
0.28
0.27
0.35
0.09

1
0.09
0.07
0.33

1
0.01
0.04

1
0.03

concentration in the respective year, either defined as the EG-index or as the locational
Gini-coefficient, calculated for each of the four-digit manufacturing industries in the
70 regions.20 From the correlation matrix, the problems of multicollinearity between
the independent variables seem negligible (Table 12).21
In Table 10, we begin by studying the effects on the level of concentration in 1975
and 1993, using the variables previously defined (regressions 1 and 2). We proceed
by including the EllisonGlaeser coefficients for 1975 as an explanatory variable
(regression 3). In the last regression (regression 4), we drop the TECH variable.
Technology (TECH) is the only one of our core variablestechnology, skill and
trade coststo attain significance and have the expected positive effect on regional
concentration. An increase in the average employment within a plant by one percentage point seems to imply an increase in concentration by approximately 0.470.70
percent. Excluding the TECH variable hardly affects the remaining variables, even
though the overall explanatory value of the regression decreases considerably. As we
apply the GINI-index as the dependent variable (regression 5), the TECH variable
remains significant even though its parametric value diminishes (the effect on the other
independent variables is negligible). We conclude that the TECH variable, defined as
average plant size measured in terms of employees, is likely to be positively associated
with an industrys regional concentration because of labor market effects, such as
access to specific expertise, labor pooling, etc., but scale effects are also likely to
influence location.
It should be noted that the knowledge variable is highly insignificant, albeit it
appears with the expected positive sign in most regressions. Hence, non-pecuniary
linkages, or knowledge spillovers, seem to have a negligible influence on the spatial
concentration of production in this model. Trade costs (TRA), and the variable
designed to pick up a large dependence on raw material (RAW), are both insignificant
and vary in sign.22 The size of the industry (INDSIZE), measured as the industrys
employment in proportion to total manufacturing employment, was the only significant control variable and, as expected, negatively related to spatial concentration.
As we inserted the EG-index in 1975 to control for concentration in the initial year,
it was shown to have a positive impact on regional concentration in 1993 and it is
20 Industry dummy coefficients are available upon request. We have used the White (1980) method to correct for
heteroscedasticity. The Durbin-Watson test indicates no problems of autocorrelation in the estimations.
21 Correlations between the variables in 1975 are approximately the same.
22 Alternatively, we used trade costs in the base year as an explanatory variable, although it had no effect on the
results.

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60

INDUSTRY AND INNOVATION

also highly significant. This variable could be viewed as capturing path-dependence

in location, or, to some extent, pecuniary linkages.23
Table 11 presents the results when the variables have been redefined to capture
changes over time. In the first two regresions, where the dependent variable is also
defined as the percentage change over time, only the size of industry variable attains
significance, albeit it turns negative. This indicates that industries that have grown
are less likely to have experienced a strong increase in concentration. As shown in
the second regression in Table 11, the initial level of concentration seems to influence
this result.
We then proceed by running the same regressions when the dependent variable is
defined as the level of regional concentration in 1993, which considerably improves
the regressions. Note that skill turns positive, albeit only weakly significant, in
regressions 3 and 5 (Table 11). However, our technology variable now turns negative,
indicating that, on average, an increase in plant employment is associated with a
negative effect on regional concentration. As we add regional concentration in the
base year 1975, this effect either disappears or the significance decreases substantially.
Hence, there seem to be two parallel forces: spatial concentration in 1993 is primarily
explained by previous concentration, while the influence of employment growth at
the plant level is weakly negative or non-significant. Since a majority of the manufacturing industries have experienced a downsizing in terms of employees between
1975 and 1993, the interpretation of this result is ambiguous. It suggests that increased
regional concentration takes place through other mechanisms than growth in employment at the plant level, e.g. the entry of new firms, relocation from other regions, etc.
To conclude, the variables related to technology, the relative size of the industry
and initial concentration, are all reasonably robust in explaining the current spatial
pattern of manufacturing production. Knowledge spillovers only attain weak support,
while the remaining variables show a negligible impact on regional concentration in
manufacturing. These results corroborate previous studies, for instance by Dumais
et al. (1997).

SUMMARY AND CONCLUSIONS

This paper has investigated the determinants and the extent of spatial concentration
in the Swedish economy by implementing a detailed data-set covering all establishments in Sweden in 1975 and 1993. We have observed that large differences prevail
in the geographical concentration of production across sectors, and that these have
accentuated over time. Whereas manufacturing has become more concentrated over
time and employs less people, the service sector displays the opposite pattern
characterized by employment growth and lower concentration. Moreover, in the
23 We also included two interaction dummies in the regressions. The first is supposed to capture the interaction
between transportation costs and eventual production technologiesTECH and TRAwhere low trade costs and
large plants are supposed to reinforce capital concentration. The second interaction variable is designed as the
combination of knowledge intensity and degree of concentration in 1975. Regions hosting knowledge intensive
industries in 1975 should, as suggested by theory, be a particularly attractive locational site for firms involved in
similar productions. However, both of these variables had no statistical impact on the results and are therefore
not shown in the tables.

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DETERMINANTS OF SPATIAL CONCENTRATION

61

manufacturing sector, there were no signs of knowledge-intensive industries being

more spatially concentrated than others. However, knowledge-intensive industries
constituted 50 percent of the top 10 most concentrated industries in the service
sector.
An interesting result is that Swedish production seems to be more geographically
concentrated than comparable industries in the USA and France. Previous research
has shown that the size distribution of firms differs between Sweden and the USA,
since Sweden has a greater share of large firms (Davis and Henrekson 1998). Hence,
it is conceivable that country-specific factors influence the spatial distribution of
production.
In line with our expectations, the econometric analysis indicates a positive impact
of plant sizemeasured in terms of employeeson spatial concentration, as does
the initial level of regional concentration. We interpret this as being related to labor
market effects, even though scale effects are likely to be contained in this variable to
some extent. Knowledge intensity only had a limited effect on the location of
industries, whereas costs of market access measured as transportation costs and
dependence on raw material failed to attain significance in the econometric analyses.
Hence, and in accordance with previous findings, in particular Krugman (1991a)
but also Ellison and Glaeser (1997) and Porter (1998), we find that the knowledge
spillover hypothesis was largely rejected. Still, regional concentration is much stronger
than suggested by a dartboard approach and obviously, there are linkages between
firms that induce co-location. One explanation could be that knowledge spillovers
are not confined to intra-industrial effects, despite the relatively high aggregation level
(four-digit ISIC). If so, we would need data that cut through the traditional industrial
classification, include services, etc., to analyze the effects of knowledge spillovers.

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