The Spread of Industry: spatial agglomeration in economic development

This paper describes the spread of industry from country to country as a region grows. All industrial sectors are initially agglomerated in one country, tied together by inputoutput links between firms. Growth expands industry more than other sectors, bidding up wages in the country in which industry is clustered. At some point firms start to move away, and when a critical mass is reached industry expands in another country, raising wages there. We establish the circumstances in which industry spills over, which sectors move out first, and which are more important in triggering a critical mass. * This paper was produced as part of the Programme on International Economic Performance at the UK Economic and Social Research Council funded Centre for Economic Performance, London School of Economics. We thank participants in the NBER-TCER-CEPR Conference on Economic Agglomeration for helpful discussion, Sigbjorn Sodal and a referee for useful comments, and Francisco Requena for providing us with data on real earnings for East Asian economies. Financial support from the Banco de España (Puga) and the Taiwan Cultural Institute (Venables) is gratefully acknowledged.