What Sorts of Agglomerations Really Matter to Productivity? A Regional Analysis of Europe’s Manufacturing Sector

The objective of this paper is to analyze the effects on regional manufacturing productivity of various external factors that characterize the economic, social, and institutional environments to which they belong. We define and distinguish here between homogeneous and urban heterogeneous external economies. Hypotheses of the existence and co-existence of the two types of external effects are formulated and tested for six manufacturing subsectors of the regions of 13 western EU countries from 1995 to 2004. Although the available data are far from optimal, the empirical analysis that they enable provides various insights that partly corroborate our conjectures. In particular, the results supply evidence of the generalized beneficial effects of urban heterogeneous agglomeration. They also reveal the complexity and sector-specificity of the effects of industry specialization patterns.