2015/28 | LEM Working Paper Series | ||||||||||||||||
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Non-linear externalities in firm localization |
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Giulio Bottazzi, Ugo Gragnolati and Fabio Vanni |
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Keywords | |||||||||||||||||
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Firm localization, Externalities, Non-linearities
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JEL Classifications | |||||||||||||||||
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C12, C16, C51, R30
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Abstract | |||||||||||||||||
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This paper presents a model of firm localization allowing for
non-linear, quadratic externalities. The model and its numerical
estimation procedure manage to disentangle localization externalities
from the intrinsic advantages of regions. Moreover, the introduction
of a quadratic term can accommodate both more-than-linear positive
feedbacks as well as congestion effects. Indeed, if the quadratic
term is sufficiently negative, one location can reach the point in which
the addition of an extra firm decreases the probability for that same
location to further attract other firms. In this sense, the present
model does not assume a priori that the localization choices of firms
are characterized by positive interdependencies. Rather, the
methodology allows to estimate whether or not this is actually the
case.
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