The determinants of agglomeration for the manufacturing sector in the Istanbul metropolitan area

Abstract

This paper examines the determinants of agglomeration by seeking the patterns of urbanization economies and localization economies in the Istanbul metropolitan area (IMA). The research is developed in two steps. The first step is the measurement of concentration levels for the IMA; the Ellison–Glaeser localization index (EGI) is applied to the 22 manufacturing sector (2-digit level) at three different geographical levels. The second step is to determine the structural pattern of agglomeration. By regressing the Ellison–Glaeser localization index values on proxies for urbanization and localization economies, the determinants of agglomeration are demonstrated. The determinants of agglomeration are estimated by 12 different two-stage OLS regressions. While three of these regressions represent the agglomeration factors at each geographical level, the other nine equations represent the agglomeration factors at the industry-specific level. The results suggest that urbanization economies have a strong effect on agglomeration both at the geographical level and industry-specific level. It is noticed that density, market area potential, and labor market potential are the most effective proxies for urbanization economies on agglomeration. The effects of localization economies are consistent with Marshall for labor pooling and manufactured input. However, the results do not provide any evidence that knowledge spillovers have an influence on agglomeration in this case.