Profiting from Agglomeration? Evidence from the Salmon Aquaculture Industry

Even though most celebrated clusters seem to be in high-cost areas, many econometric studies represent agglomeration externalities as increased primal productivity or reduced cost. While this certainly can be consistent with some observed agglomeration effects, it may be insufficient for the growth of a cluster. The key condition for this is that profitability is higher. The paper tests for agglomeration effects using a profit function approach. This may be particularly important for firms in high-cost clusters, where revenue effects can be as important as productivity and cost effects. The paper tests for both intra- and inter-industry agglomeration externalities using firm-level data.