Knowledge spillovers and growth in the disagglomeration of the U.S. advertising agency industry

Knowledge spillovers and growth in the disagglomeration of the U.S. advertising agency industry

by Charles King

Part of Working paper / Division of Research, Harvard Business School -- 03-049

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We investigate knowledge spillovers and externalities in the disagglomeration and growth of the advertising agency industry. A simple model of high demand, low wages, and externalities associated with clusters of related industries can explain the dispersion of advertising agency employment across states. Other factors affected the industry growth rate within states. Consistent with Jacobs (1969) and Porter (1990) but contrary to Marshall-Arrow-Romer, competition, but not specialization, enhanced growth. In accord with Porter (1990), growth increased with buyer cluster size. Diversity had no effect on growth. Despite improvements in telecommunications and transportation reducing effective distances, location still matters.

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