Stephen J. Appold 1996-34 Aug 1996 Economic theories maintain that continuing operational advantages, stemming from resource endowments and positive external benefits of proximity, are responsible for the development of agglomerations of firms. Sociological urbanists have, by and large, agreed with this contention. This paper offers an alternative explanation, arguing that the inability of particular firms to control high skill labor is responsible for the growth of contemporary industrial agglomerations. A theory of entrepreneurship, linking changes in the level of product sales to the control of high skill labor and the consequent generation of spin-offs, is developed. Combining theory with qualitative and quantitative evidence, support is drawn from a study of the semiconductor industry from its inception until the mid-1970's.
Historical evidence contradicts the assertions of economic location theories.
However, endogenous entrants came into being when the faltering market performance of individual firms created an imbalance between the size of the firm's workforce and the value of its sales. The research raises questions about the efficiency claims of economic urban theory and the policy prescriptions following from it.