Measurement of Agglomeration and Spatial Effects

In this paper we examine the influence of spatial dependence on the estimation of the effect of standard measures of agglomeration on local growth. The hypothesis is that the forces of agglomeration do not use up their effects inside of a single local area but they extend to more wide geographic areas, and their effect fall down on the adjacent territories. To account for these spatial effects, we propose a modification of the traditional agglomeration index suggested by Maurel and Sedillot (1999), that includes both agglomeration of economic activity within an area and neighbour effects, that is, the effect of agglomeration that comes from neighbouring areas. In the empirical exercise we compute the a-spatial and the spatial indices for the set of Sicilian local labour systems (LLSs) using 21 manufacturing and services industries from the two-digit NACE-CLIO disaggregation. The results of the exploratory spatial analysis confirm that the agglomeration index varies notably when spatial effects across areas are included in the measure: both the level of the index and its degree of spatial dependence increase when it is computed accounting for spillovers across local areas. In addition, results from the estimation of a model of the local employment dynamics reveal that a big deal of the residual spatial dependence observed in this type of specification can be accounted for by the spatial measure of agglomeration. This suggests the existence of spatial spillovers that are not bounded to the local labour systems. Moreover, we distinguish the different contribution of the traditional and spatial measure of agglomeration on the growth process of the employment.