Spinoffs and Clustering

Geographic clustering of people and organizations is a fact of modern economic life. At the aggregate level, around half the world’s population is located in cities. At the industry level, Ellison and Glaeser (1997) and Duranton and Overman (2005) show that in the modal manufacturing industry in the United States and UK, respectively, plants are more clustered geographically than would be expected if they located randomly. These simple facts have been widely interpreted to reflect some sort of advantage of clustering. Wages and prices are higher in cities and in industry clusters such as Silicon Valley (Rosenthal and Strange 2004; Puga 2010). Consequently, businesses in clusters must enjoy some kind of advantages in order to be competitive.