Dynamic Geographic Concentration through Industry Life Cycle: Preliminary Evidence from Wine Production in Ontario,

Social scientists have long noticed that firms engaged in the same business tend to be co-located with each other in a small number of separate places. This phenomenon was labeled as “economies of agglomeration” by Alfred Marshall (1920) in his neo-classical Principles of Economics. More recently, the term “industrial cluster” – defined as geographic concentrations of interconnected companies and institutions in a particular field – was coined (Porter, 1998). Whatever it is labeled13, the phenomenon of geographic concentration has attracted much attention from different social science disciplines over the past centuries. From the economic perspective, firms co-locating with each other obtain economic gains by sharing exclusive input factors such as transportation convenience (Von Thunen, 1826), natural resources (Hoover, 1948, 1968), skilled labors (Weber, 1909), specialized suppliers, knowledge spillover etc. (Marshall, 1920; Krugman, 1991b). This perspective generally posits that clustered firms outperform their non-clustered counterparts due to exclusive economic gains from co-location. Thus, geographic concentration persists because clustered firms are more likely to survive than non-clustered ones. In contrast, sociologists suggest that persistence of geographic concentration is because there are more new firms founded within the cluster (Stuart and Sorenson, 2003; Sorenson and Stuart, 2001; Sorenson and Audia, 2000), not because clustered firms outperformed non-clustered firms. This rationale assumes that potential entrepreneurs within an industrial cluster enjoy interpersonal social networks and therefore are more likely to observe and explore entrepreneurial opportunities than those who stay outside of the industrial cluster. Thus, higher founding rates of startups, not lower death rates, sustain industrial clusters (See Table1). TABLE 1 Assumptions, explanations, and predictions of the two rationales Assumption Explanation Prediction The economic rationale Heterogeneity of interpersonal social networks in different geographic locations. · People within an industrial cluster are more likely to observe and explore entrepreneurial opportunities than those who stay outside the industrial cluster. · Founding rate of firms is higher within an industrial cluster than outside the cluster. Geographic concentration persists