The Agglomeration of Headquarters∗

This paper uses a micro data set on auxiliary establishments from 1977 to 1997 in order to investigate the determinants of headquarter agglomerations and the underlying economic base of many larger metro areas. The significance of headquarters in large urban settings is their ability to facilitate the spatial separation of their white collar activities from remote production plants. The results show that separation benefits headquarters in two main ways: the availability of differentiated local service input suppliers and the scale of other headquarter activity nearby. A wide diversity of local service options allows the headquarters to better match their various needs with specific experts producing service inputs from whom they learn, which improves their productivity. Headquarters also benefit from other headquarter neighbors, although such marginal scale benefits seem to diminish as local scale rises. ∗The authors are respectively at the U.S. Bureau of the Census ([email protected]) and Brown University ([email protected]). Henderson is the corresponding author. Support for this research from NSF (award no. 0111803) is gratefully acknowledged. The research in this paper was conducted while the authors were Census Bureau research associates at the Boston Census Research Data Center (BRDC). Research results and conclusions expressed are those of the authors and do not necessarily indicate concurrence by the Bureau of the Census. This paper has been screened to insure that no confidential data are revealed. The authors thank Gilles Duranton for helpful comments, as well as participants in seminars at LSE, USC, Johns Hopkins, Chicago, the AEA and RSAI meetings, and the Federal Reserve Banks of NY, Kansas City and Chicago.