EXTERNAL ECONOMIES AS A MECHANISM OF AGGLOMERATION IN OECD MANUFACTURING

Transcription

1 EXTERNAL ECONOMIES AS A MECHANISM OF AGGLOMERATION IN OECD MANUFACTURING Nuria Domeque Claver and Carmen Fillat Castejón University of Zaraoza 1. Introdution An essential reason for the eoraphi onentration of an industry is the existene of sale eonomies in prodution or internal eonomies in ompanies. But besides inreasin returns in the individual prodution funtion, the Marshallian tradition of eonomi analysis has emphasised that there an also be sale eonomies outside ompanies and inside industries, or externalities, whih enerate positive effets in the produtivity of ompanies. One type of externalities is those alled eonomies of alomeration, whih produe a spatial onentration of eonomi ativity whih is endoenously self-reinforin. They our mainly beause the transport of oods is expensive and both suppliers and lients prefer to be eoraphially united in order to save on osts; this an bein a trend towards roupin new ompanies in the nearest eoraphial area, whih often leads to an entire proess of industrial loalisation (Hoover 1937; Weber 1929). Besides permittin savins in osts, eoraphial proximity is very important for the flow of knowlede and failitates the transmission of ideas, so we should expet partiularly important knowlede spillovers between neihbourin reions. Definitively, externalities ive rise to alomeration proesses whose mehanisms have obvious effets on industry produtivity. The purpose of this researh is, indeed, to analyse the existene of produtive externalities in industry and their effet on produtivity as an alomeration mehanism. Althouh some evidene exists, it is still santy and omes from studies on speifi industries or areated analyses of the produtive ativity. This work approahes an analysis desereated by industrial ativity and in the eonomi ontext of the OECD, a ontribution in itself. 1

2 Our analysis also athers soures of externalities studied individually in the literature, attemptin to keep to the division between peuniary and tehnoloial externalities, whih resemble stati and dynami eonomies respetively, althouh the terminoloy used is often ambiuous. Thus, startin from the theoretial foundation whih athers interindustrial externalities in the prodution funtion, analysed for the maritime industries by Midelfart- Knarvik and Steen (2002), for various industries by Henriksen et al (2001), or the mahine industry in Feser (2002), we also onsider knowlede spillovers by means of what have been alled external eonomies of speialisation and of diversity within eah ountry, whih have been analysed for areated industry by Serrano (2000), or by setors by De Luio et al (2002). Our analysis also onsiders the effet of eoraphy on externalities, as these may be more powerful with proximity or weaker at a distane. The effet of eoraphy is introdued in two ways: On one hand, we have onsidered the international speialisation of eah ountry in eah ativity as a soure of externality whih we have alled "international speialisation" as opposed to "national speialisation", also onsidered in the analysis. On the other, we have inluded an indiator of the peripherality of the ountry, iven that the effets of international externalities may be weaker on the ativity of a distant ountry. The influene of externalities and of eoraphy on produtivity is derived from the onventional analysis of the prodution funtion amplified for eah industrial ativity. A panel of data is also used, sereatin ountries, years and setors of ativity in order to determine the impat of national and international externalities and of eoraphy on produtivity rowth in the industrial ativities that experiene these effets. The paper is strutured as follows: first, the basi theoretial foundations of externalities in prodution are reviewed, as are reent studies whih have investiated the relationship between externalities, eonomies of alomeration and produtivity. Seond, the model and variables used, the sample hosen, the statistial soures and the estimation method are speified. Third, the results obtained are disussed; finally, we list the onlusions derived from the analysis. 2

3 2. External eonomies in prodution: Theoretial foundations and empirial evidene From the oriins of the literature on externalities in prodution, in the ontribution of Marshall (1923), different typoloies have been formulated and onnetions established with the New Eonomi Georaphy and Reional and Urban Eonomy, 1 as illustrated in fiure 1. Marshall distinuishes three oriins of externalities whih reate advantae in the spatial onentration of eonomi ativity. First, the existene of alomerations of ompanies favours the establishment of other omplementary ativities supplyin speialised inputs, oods and servies for eah setor, eneratin forward and bakward interindustrial linkaes. Seond, the reation of a speialised job market shared by all the businesses in the same territory. And third, the flow of tehnoloial information related to speifi knowlede whih is shared by the ompanies of a setor and enables a umulative proess of improvement in prodution (knowhow), alled intraindustrial knowlede spillovers. Later, Sitovsky (1954) distinuished between peuniary and tehnoloial externalities. The former ive rise to a redution in input osts whih is transmitted to market pries and may orrespond to the first two soures desribed by Marshall. Tehnoloial externalities, like the Marshallian ones, are assoiated with the diffusion of tehnoloy and knowlede between ompanies whih improves prodution. This distintion is similar to that used by Reional and Urban Eonomy, whih differentiates between stati externalities, similar to peuniary ones and whih relate to the size of an industry in a loalisation, and dynami externalities relatin to the diffusion of knowlede and its influene on the rowth of an ativity, both intra and interindustrial. The different typoloies of dynami and external effets an be theoretially satisfatory but turn out to be hihly ambiuous in pratie, as the size and rowth of an ativity are losely related, and are at one ause and effet of a sinle phenomenon. Their endoenous harater is hihlihted in the onept of eonomies of alomeration in the New Eonomi Georaphy, aordin to whih there is a trade-off between two opposin fores whih at on eonomi produtivity and bein a umulative proess between produtivity and alomeration. These two fores are on one hand, entripetal fores, onsistin of peuniary and tehnoloial external eonomies; on the other, entrifual fores whih promote the 1 For an exhaustive review, see Duranton and Pua (2004). 3

4 dispersion of ativities and enerate external eonomies, mainly related to transport osts, inreasinly expensive produtive fators, tehnoloial hane and hanes in demand. Inter- and intraindustrial links Speialised labor market EXTERNAL ECONOMIES Peuniary/stati Tenoloial/dynami EXTERNAL DISECONOMIES -Transport osts -More ostly prodution fators -Tehnoloial hane -Chanes in demand Tehnoloial spillovers GEOGRAPHY (spae) AGGLOMERATION AND GROWTH + DISPERSION PRODUCTIVITY Fiure 1 There is mixed evidene in the literature on the part played by externalities and by eoraphy in produtivity, with pronouned heteroeneity in the analysed ountries or setors. A first roup of work studies the impat on produtivity of externalities distinuished by their oriin, whether peuniary or stati, tehnoloial or dynami; eah of these may imply speialisation or diversifiation, or be interindustrial or intraindustrial. Also, these externalities may take plae in a national or international ambit. The existin relationship between externalities and the produtivity of labor in the industrial setor is studied in Partride and Rikman (1999), where it is examined in 48 states of the USA. As a result evidene is found that in stati externalities speialisation is more ommon than diversifiation, and in dynami ones, interindustrial externalities outnumber intraindustrial 4

5 ones. Serrano (2000) also analyses the impat of external tehnoloial eonomies in the rowth of produtivity of labor in the Spanish reions. The inrease in diversity in the other ativities of the reion inreases the differential in setorial produtivity rowth between the reion and the national averae in ariulture, enery, industry and servies eared to sales. While eonomies if diversity require a maturin period, those of speialisation have a notably positive impat on all setors in the present period, whih is losin intensity as time oes on due to the aumulation of knowlede and obsolesene in the ompanies of the setor. In turn, Caballero and Lyons (1990, 1992) ask if an inrease in ativity in a manufaturin setor leads to a sinifiant inrease in produtivity in other setors in four OECD ountries. They obtain a hih positive orrelation between national ativity and produtivity, both setorial and areated, and thus, sinifiant evidene of national and international peuniary externalities. Henriksen et al. (2001) arry out a similar analysis to that of Caballero and Lyons in four EU ountries, but they add externalities between lusters, interindustrial national and international intraindustrial externalities. They find evidene of both, positive and neative; the reatest perentae of the positive national externalities is in the hih tehnoloy industry luster, and amon the international ones, in transport. The hihest perentae of neative effets is in textiles and leather. Amon ountries, Germany is the biest reeiver of these externalities, both national and international. The interindustrial links and the spillovers, whih define Henriksen s lusters, are analysed for the Norweian maritime setor and its servie and transport setors by Midelfart- Knarvik and Steen (2002). They use a funtion of prodution amplified by the size and rowth of the supply setors as a proxy of externalities towards the maritime luster, and obtain evidene that vertial links reinfore alomeration. De Luio et al (2002) study labor produtivity rowth by setor and Spanish provine, followin Martin and Ottaviano (1996), who onsider the distribution of innovation to be lineal and to inrease proportional to eonomi ativity. Thus, labor produtivity rowth in a reion is affeted by the eneration and diffusion of innovations, dependin on the deree of speialisation, diversity and ompetitiveness of its industries. They obtain evidene of dynami effets due to industrial speialisation, deduin from this that tehnoloial spillovers happen 5

6 when there is a hih deree of speialisation. These results are in line with those of Henderson (2003), who identifies tehnoloial spillovers with speialisation in hih tehnoloy industries, and with Glaeser (1992) who assoiates them with lare reions speialisin in lare industries; but both, partiularly Glaeser, present evidene of interindustrial externalities and of the importane of speialisation or diversifiation for rowth in all setors. A seond roup of studies related to Reional and Urban Eonomy hihlihts how produtivity inreases with the size of the industry itself (eonomies of loalisation, outside the ompany but within the industry) or with the size of the reion (eonomies of urbanisation, outside the ompany and the industry, but within the reion). For Japanese industries, Nakamura (1985) proves how small industry reeives more produtive advantaes from eonomies of urbanisation. In ontrast, the larer industries reeive more benefits form loalisation, both in the same ity and in nearby ones. Alon these lines, althouh remarkin on the importane of eonomies of urbanisation, we an mention the work of Moomaw (1998) for the USA and Doan (2001) for Turkey. Some authors o further and attempt to identify the relationship that exists between eonomies of alomeration, the type of industries that beome loalised and the harateristis of the reions where they do so. Thus, Feder (2001) and Henderson (1986) identify hih tehnoloy industries as those that present the most eonomies if loalisation in the USA. Henderson (1986) underlines the stron orrelation between the industries whih present eonomies of loalisation and speialisation in the reions where they loalise; later works (Henderson 1994 and 2003) show that, dependin on eah industrial ativity, its loalisation may be determined by speialisation or diversity in the reion. The same result is emphasised by De Luio et al (2002) in their analysis of tehnoloial spillovers whih appear with hih speialisation; however for other authors suh as Glaeser et al (1992) lare industries loalise in lare reions, but the impat of diversifiation is muh reater on produtivity rowth. Finally, Lall et al (2004) examine the determinants of alomeration of ompanies in 9 industries in India, inludin infrastrutures failitatin aess to markets, but market size of the reion does not appear to play a sinifiant part. To sum up, the evidene in existin literature reveals the sinifiant importane of the size of the industry itself on eonomi produtivity, as well as the speialisation or diversifiation 6

7 of a reion, aspets linked in turn with tehnoloial spillovers, and whih we onsider to be of entral relevane in our own analysis. The eoraphial dimension of tehnoloial externalities refers to the third roup of studies, mainly Graham (2000), Cione (2002), Feser (2002) and Davis and Weinstein (2003). This literature not only solidifies and justifies the onept of tehnoloial externalities or spillovers and their influene on produtivity rowth, it also emphasises that proximity is important for the flow of know-how. If eoraphi proximity failitates the transmission of ideas, we should expet that when this is reater, knowlede spillovers are partiularly important. Graham (2000) identifies how spatial externalities affet variation in labor produtivity in the manufaturin setor. He defines externalities between reions of the UK on the basis of total employment, employment density and the distane between reions, and analyses their impat on the reions themselves and their neihbours. In any ase the results do not show a sinifiant influene on variation in produtivity, whereas the deree of intensity of apital, industry struture and the qualifiation of the labor fore do. Another way of inorporatin the effet of eoraphy is that of Cione (2002), who approximates spatial externalities with prodution density prodution per unit of ultivated area in the European reions (NUTS 3) or alternatively, in eah ountry. Prodution density, monitored by the proportion of added ariultural value in the reion, has a sinifiant influene only on the produtivity of eah NUT but not on that of the ountries, and prodution density of neihbourin NUTs has a sinifiant additional effet. Feser (2002) obtains evidene of the importane of the eoraphial omponent via the inlusion of distane whih onsiders three possible soures of externalities: the possible supply of intermediate inputs, approximatin the distane to supply reions; the availability of speialised labor, whih measures aess to a speialised labor market; and the total spendin on researh arried out by the universities, whih approximates knowlede externalities. Similarly, Davis and Weinstein (2003) analyse the potential market impat on Japanese reions, toether with ost and demand linkaes and the existene of intra- and international externalities. The results identify important effets of the size of the reion and of ost linkaes between produers and input suppliers, but the potential market and intraindustrial externalities do not seem to be robust determinants. 7

8 Thus, iven a definition of reion or ountry, distane onsidered by some indiator of eonomi ativity offers ood results for analysin the impat of eoraphy in the relationship between externalities and produtivity, and so we will use the same fous in our analysis. 3. Speifiation of an empirial model with externalities in the prodution funtion. The base of our analysis takes as its startin point the amplified prodution funtion, in line with the work of Midelfart-Knarvik and Steen (2002), Serrano (2000) or De Luio et al (2002). Toether with fator endowments, we inlude the soures of externalities indiated in the previous setion, with speial emphasis on tehnoloial externalities, besides introduin the effet of eonomi eoraphy. Startin with the premise that alomeration affets the total produtivity of the fators and that this in its turn affets output, we will analyse the existene of externalities on the rowth rate of labor produtivity by setors. Amon the externalities whih we onsider in prodution funtion, we distinuish between externalities within the industry itself intraindustrial and omin from other industries - interindustrial - and between national and international ones. Therefore we need a model whih disriminates between internal and external sale eonomies in a national industry. If we onsider a prodution funtion of the Cobb Doulas type: α 1 α Q i, = Ai, Ki, Li, (1) where Q i, is the ross added value at market pries, K is the ross apital stok, L is employment, α measures the deree of sale returns, is the ountry and i the produtive setors. We use the same equation in relative terms, and thus obtain an expression of the produtivity of labor, Q L i, = A i, K L α i, (2) Takin differenes in loarithms, ln Q L i, = ln A i, K + α ln (3) L i, 8

9 Given that we are interested in lookin for the effets of dynami externalities in the produtivity rowth rate, we take equation (3) in rowth rates, Q A K ln = ln i, + α ln (4) whih is equivalent to L i, L i, PvLi, = TFPi, + α ( K ) L i, Thus we have the labor produtivity rowth rate ( ) (5) PvLi, on the left of the equation, measured as ross added value (VA) per worker, and on the riht the total produtivity rowth rate of the fators and the rowth rate of their use, respetively. ( K L ) i,, is the relative fator endowment rowth rate measured by the apital/labor ratio. The urban and reional areas of reatest eonomi size have a reater ratio whih in turn is assoiated with hiher levels of tehnoloy and human resoures. Thus, there is both a spatial and a setorial assoiation between fator endowments and produtivity. Therefore, we expet the oeffiient assoiated with this variable to be a positive value. Externalities have an effet on the use of produtive fators, whih means an impat on the total produtivity of the fators and thus on output and labor produtivity. For this reason we suppose that this produtivity depends on tehnoloial externalities, both interindustrial and intraindustrial, national or international. TFP = f q ~, C, D, E ) (6) i, ( j, i, i, i, where ~ q j, approximates national interindustrial externalities; setor i; C i, approximates the national intraindustrial externalities of onentration of ativity in D, approximates the national interindustrial externalities, in this ase due to the i produtive diversifiation of the ountry; E i, approximates the international intraindustrial externalities; 9

10 We o on to explain how eah of these variables is measured, and aordin to theory, the hypothesis on its behaviour: ~ q j, Is the output variation of ountry in all setors j different to i within the ountry, and we expet a positive impat on produtivity. This behaviour is due to the eonomies that an be obtained in lare sale prodution. Inreases in the size of markets permit reater speialisation whih is refleted in produtivity inreases, while a rowth of the supply market redues prodution osts. Another two dimensions of national externalities are eonomies of onentration of intraindustrial ativity sometimes alled of diversity ( i ) diversifiation ( ) i C,, and interindustrial eonomies of D,. The onentration of the ountry in ativity i an be measured via the setorial diversity oeffiient whih is the Herfindhal index of the proportions of eah ativity in the ountry as a whole. If it is hih this indiates that ativity is hihly onentrated in one or a few industries. We opt to use the VA as a measurement of ativity and proxy of innovation proesses, so the variable C i, an be measured by the index: C = ( VA VA ) i i, 2 Given that we annot distinuish whih is the ativity whih onentrates the VA of a ountry, and we are interested in approximatin the effets of the onentration on this ativity, we interat the oeffiient C by the prodution level itself. Thus a hih value of this interation approximates the onentration of VA in ativity I and will be an indiator of national intraindustrial externalities. We also onsidered distinuishin impat from other setors, interatin the oeffiient by prodution in other industries. However this has been exluded from the analysis beause we would not identify the setor where the externality omes from, and in the ase of a setor-bysetor interation the derees of freedom are enormously redued. A pratiable alternative is to inlude the influene of the rest of the setors by the diversifiation of industries in the ountry. The index of diversity D i, in the ountry exludes 10

11 ativity i from the above onentration oeffiient C prodution in the ountry has an influene on ativity i. D i, = ( VA ) j, VA j i 2, so we an know if the variety of other A lower value of this index is the result of the variety of ativities and a more homoenous distribution of the ountry s prodution; a reater value indiates prodution onentration in one of the remainin ativities and perhaps less diversifiation. The literature supposes that reater diversifiation enerates more produtivity, as suppliers and lients are plentiful in the reion, empowerin interindustrial linkaes; thus, we expet the oeffiient assined to this variable to be neative. The international intraindustrial externalities are measured by the index of speialisation of ountry in ativity i: E i, VA i, VA = VAi, VA OECD OECD alulated in terms of VA in ountry in the ith setor. With this variable we measure the relative size of the setor in the ountry ompared to the averae of all the OECD ountries, or, alon similar lines, the international loalisation of a iven setor. It is supposed that a bier setor in the ountry, or in other words a more speialised ountry, an attrat new resoures while inreasin produtivity in the existin ones. This is an additional alomeration mehanism whih feeds bak to speialisation and produtivity rowth. As suh, we expet this variable to be positive. One the variables whih approximate the externalities are defined, supposin that the total produtivity rowth of the fators is a multiplyin funtion of them, and onsiderin that eoraphy will olour this effet, so that more distant reions will reeive a smaller effet from the same externality than more entral reions, we an estimate labor produtivity as follows, PvLi, t = α + β + β + β + β + β G + β u (7) ( K ) q ~ q ~ j,, t C Ci,, t D Di,, t E Ei, t G i,, t u i,, t,, L i,, t 11

12 where G is a ontrol of the effet of eoraphy in the relationship between externalities and total produtivity of the fators, takin into aount that eah variable defined takes a different value eah year t and that there is an error term for eah observation u i,, t. A ommon way to monitor the effet of eoraphy is to inlude an index of peripherality of the ountry reeivin the externality, whih weihs the distane to eah ountry aainst its eonomi importane, and whih we expet a neative value for, G = k d, k d, k N 1 DP k where is the bilateral distane between two ountries and k, DP is the ross interior produt and N is the total of ountries in the sample. In priniple we an suppose there to be a orrelation between the error term and the expliative variables, whih allows the use of fixed effets whih monitor the harateristis of the ountries whih do not hane over time. However, the estimation of the equation (7) an present a problem of endoeneity beause of usin the VA both in the endoenous variable and in some expliatives, and the rowth of the VA by employee an determine the alomeration of the ativity refleted in onentration, diversifiation and speialisation indies. This has been ontrasted by the Hausman test (1976) problems of endoeneity are takled by the use of instrumental variables, a ood alternative for onsistent estimators. Thus the hosen estimation method is the Generalized Method of Moments (GMM) whih uses the retards of the predetermined variables of the model as instruments. The statistis have ome from EUROSTAT for the prinipal areates of National Annual Aounts in millions of euros, suh as Gross Value Added to basi pries, Gross Interior Produt at market pries, Intermediate Consumption and Employment. The Gross Capital Stok has been obtained from the OECD STAN Strutural Analysis Database 2005 Edition and the distane to lare irles ame from Jon Haveman s website 2. All these data are available for 12 k 2 See 12

13 ountries, 13 produtive setors and annually from 1995 to 2002, formin a total sample of 1248 observations. Information is available for twelve OECD ountries: Austria, Belium, Germany, Denmark, Spain, Finland, Frane, Greee, Italy, the Netherlands, Portual and Sweden. The manufaturin setors orrespond to the Statistial Classifiation of Eonomi Ativities (NACE) in Rev.1.1., and are the followin thirteen: (1) Food produts, beveraes and tobao; (2) textiles and textile produts; (3) leather and leather produts; (4) wood and wood produts; (5) pulp, paper and paper produts; publishin and printin; (6) oke, refined petroleum produts and nulear fuel; (7) hemials, hemial produts and man-made fibres; (8) rubber and plasti produts; (9) other non-metalli mineral produts; (10) basi metals and fabriated metal produts; (11) mahinery and equipment n.e..; (12) eletrial and optial equipment; and (13) transport equipment. 4. Empirial estimation and results of the influene of externalities in prodution. The estimation of our model has been arried out sequentially, onsiderin first variables of national harater suh as fator endowments and national externalities, both inter and intraindustrial, and then introduin international externalities and the effet of eoraphy. In eah stae of the sequene, the estimation has been made via data panels by industries, and in eah setor the absene of orrelation has been ontrasted between the expliative variables and the error term. In most setors the rejetion of this hypothesis allows us to suppose the existene of fixed effets and mainly, in a small sample suh as ours, obtainin some unbiased estimators and the ontrol of possible omitted variable. At the same time, the presene of endoeneity is ontrasted amon the dependent and expliative variables by the test Hausman (1979), in whih ase it is instrumentalised and re-estimated via the Generalized Method of Moments (GMM) and its orretion by the use of valid instruments is indiated in the presented results whih are disussed below. 13

14 TABLE 1 VARIABLES FACTORS+ NATIONAL EXTERNALITIES ( K L ) i, q ~ j, C i, D i ( K ), L i + INTERNATIONAL EXTERNALITIES + GEOGRAPHY, q ~ j, C i, D i, E i ( K ), L i, q ~ j, C i, D i, E i, G 1 Food produts; beveraes and tobao 2 Textiles and textile produts 3 Leather and leather produts 4 Wood and wood produts 5 Pulp, paper; publishin, printin 6 Coke, refined petroleum, nulear fuel 7 Chemials, and manmade fibres 8 Rubber and plasti produts 9 Other non-metalli mineral produts 10 Basi metals and metal produts 11 Mahinery and equipment n.e.. 12 Eletrial and optial equipment 13 Transport equipment C , = qi, ( VA ) i, VA ; Di = ( VAj, VA ) i i , ; j i E VA i, VA = VAi, VA OECD i, OECD ; G = k d, k N 1 DP k 14

15 The summary table (table 1) synthesises the variables whih turn out to be sinifiant in eah ase and the value of the oeffiients obtained. The details of the omplete estimation and the relevant statistis are in the Appendix. First, as seen in equation (8), the effet of relative fator endowments on labor prodution rowth is estimated ( K L ) i, and the national externalities, intrasetorial C i, intersetorial, approximated by the dynamism of the remainin setors whih an be linked to and q ~ j, and their diversifiation D i,. The oeffiients of the variables that are found to be sinifiant are the first olumn of table 1 (see also table A1 of the Appendix). PvLi, t = α + β + β + β + β u (8) ( K ) q ~ q ~ j,, t C Ci,, t D Di, t u i,, t,, L i,, t The results onfirm the relevane of fator endowments in pratially all setors and of national externalities of onentration and diversifiation, espeially the former, whih hihlihts the importane of rowth of national loalisation of industrial ativity. In all ases the sins obtained are as expeted, and we an affirm that a reater endowment of apital per worker has a positive influene on produtivity rowth; the same effet is dedued from the rowth of onentration of ativity within the ountry and the rowth of its diversifiation in the supply and lient setors. Only in the transport equipment industry (13) do we find that endowment fators are not relevant, but externalities are; this may indiate that the mehanisms of alomeration and interindustrial linkaes propounded by the New Eonomi Georaphy play a very important part in this setor. At the same time it is notieable that neither endowment fators nor national externalities are relevant in oke, refined petroleum produts and nulear fuel (6), loially enouh if we think of our dependene on the exterior reardin these produts, whih leads us to think that international externalities will have more influene. The rowth of onentration or national speialisation ontributes to the rowth of produtivity in all setors exept, as mentioned, petrol refinery and is usually aompanied by a sinifiant diversifiation of suppliers and lients within the ountry. Dynamism in diversifiation or in interindustrial linkaes does not seem to be relevant for the setors of other non-metalli mineral produts (9) or for mahinery and equipment n.e.. (11), where only endowments and the inrease of national speialisation are sinifiant. But diversifiation or 15

16 less onentration oes hand-in-hand with a neative dynamism in interindustrial relationships in hemials, hemial produts and man-made fibres (7) and in basi metals and fabriated metal produts (10); this indiation of external diseonomies leads us to think that onentration and rowth of ativity in other setors implies a redution in produtivity in metal and hemial produts, indiatin perhaps the sensitivity of these setors to imbalane in their interindustrial relationships. The seond olumn in table 1 and table A2 of the Appendix show the estimation of the prodution funtion amplified also by externalities of international speialisation to the equation (9): PvLi, t ( K ) q ~ q ~ j,, t C Ci,, t D Di,, t E Ei, t u i,, t L i,, t E i, = α + β + β + β + β + β u (9),,, aordin Toether with the sinifiane of the relative abundane of apital in all setors exept transport equipment, the results onfirm the relevane of rowth of loalisation of ativity in the international ontext in all setors exept mahinery and equipment n.e. (11) and optial and eletrial equipment (12). It appears that in these two setors their speialisation within the ountry has more relevane than international speialisation, but in the other setors it is notieable how their produtivity rowth improves when, besides speialisation at national level, an international alomeration is also produed. Toether with this, the rowth of international speialisation beomes more relevant than the national in three setors: Food produts, beveraes and tobao; (1), rubber and plasti produts (8) and oke, refined petroleum produts and nulear fuel (6); however, both national and international speialisation ontinue to have a positive and sinifiant effet on the other setors. The evidene of intraindustrial eonomies of speialisation, both national and international, is more abundant than that of eonomies of diversifiation, somethin frequently found in the literature, for example in De Luio (2002) and Henderson (2003). While the setors of basi metals and fabriated metal produts (10) and of transport equipment (13) benefit from rowth in the diversity of produtions in the ountry, others suh as pulp, paper and paper produts; publishin and printin(5) and other non-metalli mineral produts (9) seem to benefit, in ontrast, from the rowth of only a few suppliers or lients. 16

17 The evidene of interindustrial externalities is also weaker than that of intraindustrial externalities of speialisation, with setors that benefit from the dynamism of other setors, suh as wood and wood produts (4) or oke, refined petroleum produts and nulear fuel (6). In this last ase we an hihliht the sinifiant effet that the abundane of apital and the dynamism of the other setors have on produtivity, one we onsider the influene of its international loalisation, whih an indiate both its intensity in physial apital and its sensitivity as a supplier to the whole eonomy. However there is evidene of external diseonomies in Food produts, beveraes and tobao (1), hemials, hemial produts and man-made fibres (7) or basi metals and metal produts (10). We would have to di deeper to find the auses of this neative effet on produtivity, althouh in the ase of metals and metal produts (10) there is also evidene that it is a setor whih benefits from the rowth in diversity in the ativities of the ountry, and less so from the rowth of other setors. Nevertheless, these are three setors where the evidene in favour of speialisation, international in the ase of food and both national and international in the rest, is robust. It is also notieable that national speialisation is less important than international in the setor of Food produts, beveraes and tobao (1) and rubber and plasti produts (8), and that international externalities affet oke, refined petroleum produts and nulear fuel (6), as they are linked to natural resoures. The last olumn in table 1 and table A3 of the Appendix shows the effet of fator endowments and externalities, as well as the effet of the peripherality of the ountry G on the rowth of produtivity of eah setor, shown in equation (7). Aain, the evidene of the relevane of the abundane of apital is robust and arees with the literature (Feser, 2002, for example). The effet is positive and sinifiant in all setors exept transport equipment (13). We also see how one externalities and eoraphy are monitored, the oeffiient of rowth in the abundane of apital is reater, and there is evidene of sale eonomies in metal produts (10) and mahinery and equipment n.e. (11), where both national and international speialisation are important; in rubber and plasti produts (8), where international speialisation is important, and in eletrial and optial equipment (12), where national speialisation is relevant. A notable exeption is the textiles and textile produts setor (2) where, before monitorin externalities, we observe apparent sale eonomies, whih disappear when we onsider the effet of international 17

18 speialisation and of eoraphy. This result leads us to think that the textile industry loalises in the ountries where there is an abundane of the labor fator. In the other ativities, by way of ontrast, when externalities are ontrolled the effet of relative apital endowment is inreased; this result may indiate a neative orrelation between abundane of apital and international speialisation; that is, in the setors whih present international alomeration, this takes plae where there is an abundane of labor, and perhaps lower salaries, demonstratin the mehanism most often used in the New Eonomi Georaphy. The evidene in favour of national and international intraindustrial externalities of speialisation is also robust, and more plentiful than the evidene of interindustrial externalities, both throuh the dynamism of the other setors and throuh that of the diversifiation of prodution in the ountry. The roup where the sinifiant externalities are national and international speialisation are still the setors of textiles and textile produts (2), leather and leather produts (3) and hemials, hemial produts and man-made fibres (7), exept the setor of pulp, paper and paper produts; publishin and printin (5). Toether with speialisation externalities, there is evidene of externalities of diversifiation in wood and wood produts (4), basi metals and fabriated metal produts (10), mahinery and equipment n.e. (11) and transport (13). The evidene is repeated that 10 benefits from rowth of variety in the eonomy but not from rowth in other setors. The dynamism of interindustrial links presents less robust evidene, as new results appear showin positive external eonomies in the setors of leather and leather produts (3) and mahinery and equipment n.e. (11) and neative external eonomies in rubber and plasti produts (8), althouh our results see a repetition of external diseonomies in the setors of Food produts, beveraes and tobao (1), hemials, hemial produts and man-made fibres (7) and basi metals and fabriated metal produts (10), althouh this last does benefit from diversity; and external eonomies in wood and wood produts (4) and oke, refined petroleum produts and nulear fuel (6). The literature shows evidene of externalities in interindustrial relationships in Midelfart-Knarvik and Steen (2002) and Caballero and Lyons (1990, 1992). Our results are in line with those obtained by Henriksen et al. (2001), as they obtain national interindustrial effets and international intraindustrial effets, both positive and neative, althouh the setorial desereation of the study is different. 18

19 When the entral or peripheral position of the ountries is ontrolled, the importane of national interindustrial externalities beomes evident, in wood (4) throuh the dynamism of diversifiation; in mahinery and equipment (11) throuh the dynamism of other ativities and rowth of diversifiation; and eletroni and optial equipment (12) throuh diversifiation. Peripherality does not appear to be relevant in oke, refined petroleum produts and nulear fuel (6), rubber and plasti (8), non-metalli minerals (9), metals (10) and transport (13). Reardin the setors of oke, refined petroleum produts and nulear fuel (6), mineral produts (9) and metals (10), the result is loial if we think that these setors are tied to the existene of natural resoures, so international speialisation is tied to fator endowments. The transport setor (13) is so important in many ountries that overnments treat it as a barometer of the eonomy. For this reason, overnments will pull out all the stops to attrat new investment or ive rants to vulnerable ompanies. Many developin ountries have tried to provide themselves with, for example, a ar manufaturin industry (motor vehiles have a hiher exportation oeffiient than the transport equipment manufaturin setor), with mixed results. Most of the world s ar prodution is onentrated in only six ountries: Japan, the USA, Germany, Frane, Spain and South Korea, followed by six more, the UK, Canada, Italy, Belium and Brazil. Within those that orrespond to our study sample, Spain and Italy are rearded as peripheral. Also, the rubber and plastis setor (8) depends larely on the ar manufaturin setor and is losely tied to its proress. Generally, in all these ativities the importane of national and/or international speialisation is seen both in peripheral and in entral ountries, and thus eoraphy is not an influene. In the setors of food produts, beveraes and tobao (1) and mahinery and equipment (11) the indiation of eoraphy is the opposite to what is expeted. The former is a setor with interindustrial diseonomies, is neatively influened by the dynamism of other setors, and benefits from international but not from national speialisation, even before ontrollin its eoraphial position, i.e., it is important not at a national level but when ompared with other ountries. A desriptive analysis of this setor shows us its importane in ountries suh as Greee, Spain and Italy, ountries where ulturally the setor related to food may arry enormous weiht despite bein peripheral, whih indiates that they ould reasonably be benefited by their eoraphial position. The seond is now remarkable for its externalities of national and international speialisation and diversifiation. It is haraterised by a hihly qualified workfore 19

20 and hihly tehnoloial ontent where the diffusion of know-how plays a very important part. Competition is also very relevant, whih in this ase is not diminished by distane, as the setor has hih ativity in peripheral ountries as well as in entral ones. Perhaps de-loalisation, frequent in the internationalisation proess of many lare ompanies and most of all in speifi hih tehnoloy setors, is playin an important part here. To sum up, we an distinuish four roups of setors aordin to the effet of externalities on produtivity rowth. In all exept the transport setor (13) apital endowments per worker are also determinants of produtivity. A first roup overs setors where national and international speialisation is relevant: textile (2), leather (3) and hemial produts (7) where this last reeives diseonomies. The seond roup is formed by branhes with national externalities of speialisation and diversifiation suh as wood (4), mahinery and equipment (11) and eletroni and optial equipment (12) where ontrollin the peripheral position hihlihts the importane of diversifiation (and in mahinery, setor 11, international speialisation and the dynamism of other setors). The third roup inludes the metal setor (10) whih as already noted, benefits from the rowth of diversity in the eonomy but not from the dynamism of other setors. This is to say, on one hand, it is prejudied by ativity bein onentrated in a few setors beause it needs the existene of variety, refleted in a speial environment where its prodution development is effiient and less damain to the natural environment, by takin advantae of the ost advantaes offered by transport infrastrutures, the seurity of havin a reulated judiial framework, the push of ompetition, sale eonomies whih permit aess to a wide market; definitively, a livin business fabri. On the other hand, it is prejudied if there are other setors with a lot of effiient rowth as these an drain its workfore or prodution resoures in eneral, espeially with the rowin privatisation proess whih is takin plae in this ativity. Next to this setor we hihliht that of transport (13), as even before ontrollin the eoraphial position both benefit from national and international speialisation as well as diversifiation. We an also point out that more than fator endowments, externalities of all kinds are what determine produtivity rowth. This fat may be related to the upwards links that exist in this industry, suh as the manufature of rubber elements, tyres, plastis, lass, paints, eletroni omponents and 20

21 textiles; and downwards operations suh as sales, after-sales servies, repairs, fuels, finanial and insurane staff, et. Lastly, in the fourth roup we find international speialisation in setors suh as food produts, beveraes and tobao (1), oke, refined petroleum produts and nulear fuel (6), rubber and plastis (8) and non-metalli minerals (9); food (1) and rubber and plastis (8) with external interindustrial diseonomies and petrol produts (6) with external eonomies. In ontrast, in the paper and printin setor (5), when eoraphy is introdued the importane of diversifiation and international speialisation disappears due to the effet of the need for a spatially entral position for arryin out the ativity. 5. Conlusions The proposal of this study was to analyse the existene of produtive externalities in the manufaturin industries of the OECD ountries, desereated by setors of ativity and for the period Externalities have a positive effet on the use of produtive fators, whih means reater total produtivity of the fators and thus on output and labor produtivity. For this reason we suppose that produtivity rowth depends on peuniary and tehnoloial externalities, interindustrial and intraindustrial, national or international. At the same time their effet is made more pronouned by eoraphy, iven that peripheral ountries may find the effet of externalities on produtivity of eonomi ativities is lessened. The results onfirm the positive influene on labor produtivity rowth of fator endowments in pratially all the setors analysed, even with the appearane of sale eonomies in some of them. It is also obvious that there are intraindustrial eonomies of speialisation, both national and international, whih are also more abundant than the interindustrial ones, whether beause of the dynamism of the rest of the setors or beause of diversifiation in prodution, a result whih is in line with most of the existin literature. These results are onfirmed in the setors of textiles and textile produts (2), leather and leather produts (3), wood and wood produts (4), hemials, hemial produts and man-made fibres (7), basi metals and fabriated metal produts (10), mahinery and equipment (11) and transport (13) where national and international intraindustrial speialisation is found, and there is 21

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