Working Paper No. 1167

The Economic Microgeography of Diversity and Specialization

Published: May 10, 2017Pages: 28Keywords: Productivity; Diversity; Specialization; Externalities; Knowledge spillovers; Attenuation; Agglomeration economies; GeocodingJEL-codes: R12; D24; L23
Published version

The Economic Microgeography of Diversity and Specialization Martin Andersson, Johan P Larsson and Joakim Wernberg


As cities increasingly become centers of economic growth and innovation, there is a need to understand their inner workings and organization in greater detail. We use ge-coded firm-level panel data at the sub-city level to assess the long-standing question whether agglomeration economies derive from specialization (within-industry) or diversity (between-industry).

We show that these two types of externalities co-exist, but differ in their spatial distribution and attenuation within cities. There are robust positive effects of diversity and specialization on firms’ TFP growth at the local within-city neighborhood level, especially for firms in high-tech and knowledge-intensive activities. While specialization effects are bound to the local sub-city level, we demonstrate a positive effect of overall diversity also at the city-wide level.

The results resonate with the idea that urban economies provide a mix of industrial diversity and specialisation. A location in a within-city industry cluster in a diversified, large city appears to let firms enjoy the benefits of local industry-specific externalities, while reaping the general city-wide benefits of a diversified city.

Martin Andersson

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Interdisciplinary European Studies

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This book explores how the European Union responds to the ongoing challenges to the liberal international order. These challenges arise both within the EU itself and beyond its borders, and put into question the values of free trade and liberal democracy. 

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