Geographic concentration and high tech firm survival

a r t i c l e i n f o If localization economies are present, firms within denser industry concentrations should exhibit higher levels of performance than more isolated firms. Nevertheless, research in industrial organization that has fo-cused on the influences on firm survival has largely ignored the potential effects from agglomeration. Recent studies in urban and regional economics suggest that agglomeration effects may be very localized. Analyses of industry concentration at the MSA or county-level may fail to detect important elements of intra-industry firm interaction that occur at the sub-MSA level. Using a highly detailed dataset on firm locations and characteristics for Texas, this paper analyses agglomeration effects on firm survival over geographic areas as small as a single mile radius. We find that greater firm density within very close proximity (within 1 mile) of firms in the same industry increases mortality rates while greater concentration over larger distances reduces mortality rates. Marshall hypothesized nearly a century ago that knowledge spill-overs and shared human capital are localized and help to explain why certain industries that are not otherwise tied to geographically specific inputs or demand tend to concentrate spatially. Geographic proximity of kindred firms should foster human interaction, inter-firm labor mobility, and the exchange of knowledge. As an industrial concentration grows and the localized knowledge base expands, the embedded firms enjoy aggregate economies of scale which, in turn, should contribute to relatively higher growth rates of the geographically concentrated industry. If these localization economies bestow advantages on firms in spatially concentrated industries, one would naturally expect that entrants would have a preference toward spatial proximity to like establishments. Rosenthal and Strange (2003) find evidence that lo-calization influences entrants' location decisions although the effect diminishes rapidly over space. One would not only expect to see a relatively higher rate of entry, however. The cost advantage derived from localization economies should lead to higher industry performance and lower hazard rates, ceteris paribus, for kindred firms within the spatial concentration. Indeed, Henderson (2003) finds that industrial localization at the county-level has strong productivity effects in the high tech industries. The objective of this paper is to estimate the effect of spatial concentration on the probability of establishment survival for a set of high technology industries in Texas. These relatively new industries have exhibited a strong tendency to cluster. Using a highly detailed establishment-level data set for Texas, we are able to …