Agglomeration and Industrial Location: An Econometric Analysis of Japanese-Affiliated Manufacturing Establishments in Automotive-Related Industries

Abstract This paper examines the role of a particular type of agglomeration, the co-location of backward- and forward-linked manufacturing enterprises, in the process of industrial location. It does so by an econometric analysis of Japanese-affiliated manufacturing establishments in automotive-related industries. We advance the hypothesis that proximity to Japanese-affiliated automotive assemblers is the major consideration in the choice of location by Japanese-affiliated automotive suppliers and related manufacturing establishments. We develop econometric models to test this hypothesis in light of a series of measures of agglomeration and other area characteristics such as manufacturing density, unionization, wages, minority concentration, and taxes. The empirical findings confirm this hypothesis. Japanese automotive-related manufacturing establishments reveal a preference for locations in close proximity to Japanese automotive assemblers, with larger populations, a higher manufacturing density, a more educated work force, and better transportation. Furthermore, in contrast to the prevailing literature, Japanese automotive-related manufacturing establishments are found to prefer locations with higher wages and higher concentrations of minorities.