CHAPTER 6 - LITERATURE SURVEY: REGIONAL PRODUCTIVITY DIFFERENCES AND THE ROLE OF EXTERNALITIES

The purpose of this study, composed of chapters 6, 7 and 8, is to evaluate the productivity effects of externalities associated with the location of IT vs. non-IT employment. This chapter is an attempt to describe the state of knowledge in the field of agglomeration economies and spatial productivity differentials. Its purpose is to understand better different externality measurement techniques used in regional economics, before applying them to study IT and non-IT externalities specifically in chapters 7 and 8. Chapter 7 will describe the methodology used for such analysis and chapter 8 will present and comment on the results obtained.

The first section of this chapter starts by defining agglomeration economies and various economies of scale. It also reports some findings regarding the role of localization and urbanization economies. The second section describes the different techniques used to assess the role played by externalities in explaining spatial productivity variation, such as shift-share analysis, some empirical studies and the sources of growth framework. The third section focuses on a study that is more closely related to the method used in chapter 7, since it is a county-based analysis. This study was conducted by Ciccone and Hall (1996), who showed that the density of economic activity at the county level can explain half of the variance in output per worker across states. Finally, some studies have attempted to analyze the localization patterns of information technology activity and their effects on productivity. The last section will discuss some of these studies.