Improving the Traditional Measures of Agglomeration with Neighbouring Effects

The traditional measures of concentration are based on the hypothesis that agglomeration forces among plants appear only inside of a single area and they do not have any effect outside of it. Instead, it is reasonable thinking to the existence of factors exerting their effects not only within the territory where they were originated but, in the meantime, producing spillovers into neighbouring areas. Building on this assumption, this paper contributes to the agglomeration literature by proposing an extension of the traditional agglomeration measures that account for externalities that cross the barriers of the geographical units under analysis. So, we want to examine the spatial dependence among agglomerative forces in contiguous areas. In order to measure the spatial agglomeration we used the index proposed by Maurel and Sédillot, but in the recent version by Maré and Timmins, after inverting the role of the industry with that one of the area to obtain an agglomeration measure for each Local Labour System. In particular, we assume that urbanization externalities cross the borders of the single local reality falling down on the adjacent ones or whatever nearby.