The effects of agglomeration economies on the productivity of manufacturing local units in Ireland

The purpose of this study is to examine the effects of agglomeration economies on the productivity of manufacturing local units in Ireland. Four types of agglomeration economies are considered in this study. These are internal economies of scale, localization economies, related variety and urbanization economies. This study makes a number of contributions to the literature. Firstly, this is the first study to conduct an investigation of the effects of agglomeration economies on the productivity of manufacturing local units operating in Ireland. Secondly, this study distinguishes between indigenous and foreign-owned local units which is important given the dual nature of the Irish economy (Krugman, 1997). Thirdly, in addition to considering the effects of agglomeration economies, this study examines the impact of spurious agglomeration on the productivity of foreign-owned local units. Using data from the Census of Industrial Local Units and a series of IV GMM estimators to control for endogeneity, the results of the analysis conducted in Chapter 6 reveal that there are differences in the effects of agglomeration economies on the productivity of indigenous and foreign-owned local units. In Chapter 7 the Census of Industrial Local Units is supplemented by additional data sources and more in-depth measures are generated to capture the features of each of the external agglomeration economies considered in this analysis. There is some evidence to suggest that the availability of local inputs has a negative and significant impact on productivity. The NACE based measures of related variety reveal that the availability of local inputs and knowledge spillovers for related sectors have a negative and significant impact on productivity. There is clear evidence to suggest that urbanization economies are important for increasing the productivity of indigenous local units. The findings reveal that a 1% increase in population density in the NUTS 3 region leads to an increase in the productivity of indigenous local units of approximately 0.07% to 0.08%. The results also reveal that there is a significant difference in the effects of agglomeration economies on the productivity of low-tech and medium/high-tech indigenous local units. The more in-depth measures of agglomeration economies used in Chapter 7 are also used in Chapter 8. A series of IV GMM regressions are estimated in order to identify the impact of agglomeration economies and spurious agglomeration on the productivity of foreign-owned local units operating in Ireland. There is some evidence found to suggest that the availability of a pool of skilled labour has a positive and significant on productivity of foreign-owned local units. There is also evidence to suggest that localization knowledge spillovers have a negative impact on the productivity of foreign-owned local units. There is strong evidence to suggest that the availability of local inputs has a negative impact on the productivity. The negative impact is not confined to the NACE 4-digit sector but also extends into related sectors as determined by Porter’s (2003) cluster classification. The cluster based skills measure of related variety has a positive and significant impact on the productivity of foreign-owned local units. Similar to Chapter 7, there is clear evidence to suggest that urbanization economies are important for increasing the productivity of foreign-owned local units. Both the summary measure and each of the more in-depth measures of agglomeration economies have a positive and significant impact on productivity. Spurious agglomeration has a positive and significant impact on the productivity of foreign-owned local units. The results indicate that the more foreign-owned local units of the same nationality in the country the greater the levels of productivity for the local unit. From a policy perspective, urbanization economies are clearly important for increasing the productivity of both indigenous and foreign-owned local units. Furthermore, the availability of a pool of skilled labour appears to be important for increasing the productivity of foreign-owned local units. Another policy implication that arises from these results relates to the differences observed between indigenous local units and foreign-owned local units and also between low-tech and medium/high-tech indigenous local units. These findings indicate that ‘one-size-fits-all’ type policies are not appropriate for increasing the productivity of local units operating in Ireland. Policies should be tailored to the needs of either indigenous or foreign-owned local units and also to specific sectors. This positive finding for own country spurious agglomeration is important from a policy perspective and is one that IDA Ireland should take on board.

The effect of alcohol consumption on household income in Ireland

This paper presents a study of the effects of alcohol consumption on household income in Ireland using the Slán National Health and Lifestyle Survey 2007 dataset, accounting for endogeneity and selection bias. Drinkers are categorised into one of four categories based on the recommended weekly drinking levels by the Irish Health Promotion Unit; those who never drank, non-drinkers, moderate and heavy drinkers. A multinomial logit OLS Two Step Estimate is used to explain individual's choice of drinking status and to correct for selection bias which would result in the selection into a particular category of drinking being endogenous. Endogeneity which may arise through the simultaneity of drinking status and income either due to the reverse causation between the two variables, income affecting alcohol consumption or alcohol consumption affecting income, or due to unobserved heterogeneity, is addressed. This paper finds that the household income of drinkers is higher than that of non-drinkers and of those who never drank. There is very little difference between the household income of moderate and heavy drinkers, with heavy drinkers earning slightly more. Weekly household income for those who never drank is €454.20, non-drinkers is €506.26, compared with €683.36 per week for moderate drinkers and €694.18 for heavy drinkers.