Impact of Agglomeration Economies on Regional Performance in Germany

We analyze the impact of agglomeration economies on employment growth rates for German sector-region combinations using firm-level data. We provide a comprehensive overview of the impact of agglomeration economies analyzing all relevant industries on three spatial scales, taking spatial dependence thoroughly into account in the regression models. As cluster formation is generally actively encouraged, we allow for a nonlinear effect of specialization in our regression model, including different industries. On the finest scale, we find that high specialization contributes to employment growth for the two sectors trade and social services, but has a negative direct effect on the manufacturing sector.