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Agglomeration near and far, the case of Southern California: supply chains for goods and ideas

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Abstract

Prosperity and economic growth require robust specialization and exchange. This means the formation and maintenance of numerous complex supply chains. These are emergent and include supply chains for things and supply chains for ideas. The former involve transactions; the latter can be via transactions and/or realized positive externalities. All supply chains have a geographic dimension which is also emergent. Firms carefully choose what to make vs what to buy and also where to sell or buy it, near or far. The whole system tends to be a pattern of locations that denote realized transactions (and transactions costs) as well as realized externalities. The city remains a competitive producer if these relationships are encouraged with the attendant costs contained. Cities are “engines of growth.” They offer attractive supply chain formation and management opportunities, including the various spatially situated supply chains for things and ideas. The latter are more complex than textbook discussions of non-rival goods suggest. People are keen to identify and acquire useful knowledge. Consider (1) the advantages of open-source knowledge sharing have been acknowledged; (2) ideas often denote complex tacit knowledge exchange, and (3) access to useful knowledge is priced in land markets and impacts location choice. Favorable networking and location opportunities are significant. Flexible land markets facilitate the availability of such opportunities. Access to pools of human capital is clearly beneficial, but the ability to tailor access to the peculiar requirements of the firm is even better. Detailed firm location data for various sectors for the Los Angeles metropolitan areas are analyzed to support our claims. We estimate Ripley k-functions and note differences by industry as well as firm size. There is agglomeration that is near as well as far. This finding complicates “death of distance” as well as “clustering” discussions.

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(Source: Geographic Research, Inc., 2014)

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Source: “The geography of start-ups: something in the air: why birds of a tech feather flock together” The Economist, October 27, 2012

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Notes

  1. “Sustainable economic growth” is palpable and distinct from the widely cited but vague “sustainability.”

  2. Johansson and Quigley (2004) note that networks are akin to a club with insiders and outsiders, while agglomeration refers to situations where exclusion is difficult. Their paper develops differences and similarities. They also note that significant co-location denotes agglomeration, but many new networking options may accomplish as much but over a larger space. “We have seen that agglomeration economies and network economies are two different complementary ways of solving problems of market exchange” (p. 10). But supply chains, especially involving ideas, may or may not involve transactions.

  3. http://www.econlib.org/library/Essays/rdPncl1.html.

  4. “The most important consequence of specialization and trade is that we specialize in just a few tasks but we enjoy the products of millions of tasks.” http://www.arnoldkling.com/blog/formalize-this/.

  5. Jasanoff (2018) reminds us that it is best to consider “the continuum that unites the brain with its surroundings.” (p. 90). He explains that the brain cannot be separated from all else that goes on in the body. “Nowhere is the integration of brain and body more apparent than in the domain of our emotions.” (p. 98). “… the brain is an essential link in the causal chain that binds our internal biology to the environment around us; it is the great communicator that relays signals from the outside world into each person an back out again.” (p. 144).

  6. Wegner and Gray (2016) compare to colonies of individual ants; the former is much more capable than the latter. They refer to “emergence” which occurs when elements are “connected correctly” (p. 222–223).

  7. A useful survey of discussions that link tacit information, innovation and location is in Howells (2002).

  8. This view ignores the psychological reasons that people might give for actually avoiding information (Golman et al. 2017).

  9. At this writing, Google Scholar brings up 100,000 citations for “useful knowledge.”

  10. Some writers cite the underlying “chains of promises.” Ridley (2010) chose to be clearer, “I believe that at some point in human history, ideas began to meet and mate, to have sex with each other.” Random combinations of genes and ideas followed by competition and selection.

  11. “Networks are yet another IQ multiplier” (Jones 2015, p. 148).

  12. Choosing places to meet is increasingly important and even modeled. See, for example, Tilahun and Levinson (2009).

  13. Some authors prefer “internal agglomeration” economies, Alacazer and Delgado (2013).

  14. Much has been written about “smart growth” controls, but very little about a light touch approach that recognizes indispensable market signals. One exception is a paper by Staley and Scarlett (1977).

  15. Not long ago, some writers suggested the “death of distance” (Cairncross 2001). “Will improvements in information technology eliminate face-to-face interactions and make cities obsolete?” (Gaspar and Glaeser 1996, who cite many other such prognostications; they also note that the introduction of telephony did not interrupt the path of urbanization).

  16. See, for example, Gordon and Ikeda (2011) who question the value of the simple question.

  17. http://www.santafe.edu/research/cities-scaling-and-sustainability/.

  18. A large empirical literature supports this point. See, for example, Pollakowski and Wachter (1990).

  19. “After all, the most famous modern agglomeration of industry, Silicon Valley, has occurred in the industry with the most access to the latest and best information technology” (Gaspar and Glaeser 1996, p. 43). This is still true 20 years later.

  20. US Congress, Office of Technology Assessment. OTA (1995, p. 70).

  21. The regression sample size = 2991 because not all sector pairings exist in our study area.

  22. Ellison et al. (2010) also regress co-location correlations on plausible explanatory variables, but they consider only the manufacturing sectors.

  23. Glaeser (2000, p. 84).

  24. Success includes the ability to make substitutions if/when there are unreliable partners; bigger cities offer more choice opportunities.

  25. Glaeser and Scheinkman (2001) note that “Cities themselves are networks and the existence, growth and decline of urban agglomerations depend to a large extent on these interactions” (p. 427). I claim that supply chains for things and supply chains for ideas denote more than allusions to networks. With respect to the latter, we have more and better ideas when we function in an environment of smart and creative people. See Jones (2015). Within that environment, we work hard to discover and cultivate the best sources. Lee’s Entrepreneurial Supply Chains (2012) is distinct from what I refer to here.

  26. Garreau (1991, p. 29).

  27. Each of these is, of course, necessarily continuous. Such is competition. Maskell and Malmberg (1999).

  28. Some have cited Japanese zoning as more flexible. http://www.mlit.go.jp/common/000234477.pdf.

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Acknowledgements

The authors wish to thank two anonymous referees and Dr. Sungbin Cho of the Southern California Association of Governments for valuable comments.

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Authors and Affiliations

  1. University of Southern California, Los Angeles, USA

    Peter Gordon

  2. Southern California Association of Governments, Los Angeles, USA

    John Cho

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Correspondence to Peter Gordon.

Appendix

Appendix

See Figs. 8, 9, 10, 11, 12, 13, 14, 15, 16, 17, 18, 19, 20, 21, 22, 23, 24, 25, 26, 27, 28, 29, 30, 31, 32, 33 and 34.

Fig. 8
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a Sector 311, all firms, b sector 311, # jobs equal or over 90th pctl

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a Sector 312, all firms, b sector 312, # jobs equal or over 90th pctl

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a Sector 313, all firms, b sector 313, # jobs equal or over 90th pctl

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a Sector 314, all firms, b sector 314, # jobs equal or over 90th pctl

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a Sector 315 all firms, b sector 315: # jobs equal or over 90th pctl

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a Sector 316 all firms, b sector 316: # jobs equal or over 90th pctl

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a Sector 321 all firms, b sector 321: # jobs equal or over 90th pctl

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a Sector 322 all firms, b sector 322: # jobs equal or over 90th pctl

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a 323 all firms, b 323: # jobs equal or over 90th pctl

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a Sector 324 all firms, b sector 324: # jobs equal or over 90th pctl

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a Sector 325, all firms, b sector 325: # jobs equal or over 90th pctl

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a Sector 326 all firms, b sector 326: # jobs equal or over 90th pctl

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a Sector 327 all firms, b sector 327: # jobs equal or over 90th pctl

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a Sector 331, all firms, b sector 331, # jobs equal or over 90th pctl

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a Sector 332 all firms, b sector 332: # jobs equal or over 90th pctl

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a Sector 333 all firms, b sector 333: # jobs equal or over 90th pctl

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a Sector 334 all firms, b sector 334: # jobs equal or over 90th pctl

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a Sector 335, all firms, b sector 335: # jobs equal or over 90th pctl

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a Sector 336, all firms, b sector 336: # jobs equal or over 90th pctl

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a Sector 337, all firms, b sector 337, # jobs equal or over 90th pctl

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a Sector 339, all firms, b sector 339, # jobs equal or over 90th pctl

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a Sector 511, all firms, b sector 511, # of employment equal or over 90th pctl

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a Sector 512, all firms, b sector 512, # jobs equal or over 90th pctl

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a Sector 515, all firms, b sector 515, # jobs equal or over 90th pctl

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a Sector 517, all firms, b sector 517, # jobs equal or over 90th pctl

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a Sector 518, all firms, b sector 518, # jobs equal or over 90th pctl

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a Sector 519, all firms, b sector 519, # jobs equal or over 90th pctl

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Gordon, P., Cho, J. Agglomeration near and far, the case of Southern California: supply chains for goods and ideas. Ann Reg Sci 61, 517–552 (2018). https://doi.org/10.1007/s00168-018-0881-6

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