Agglomeration of Services in American Metropolitan Areas

The growth of many service industries among American metropolitan areas stem from an eclectic set of forces. These include market penetration effects of increasing importance of services throughout the economy, agglomeration effects in immature and deregulated industries, and institutional and infrastructure constraints. These diverse forces are interpreted as urbanization and localization economies. A cycle of centralization of 27 fast growing service industries is documented for MS As in the period 1977‐84. The two agglomeration effects are tested directly, using a power function model that relates employment and establishment growth to MSA size and initial level of employment in a local industry. Localization economies rather than the general advantages of metropolitan size best explain the growth patterns. This result implies that service industrial complexes are rapidly emerging in American metropolitan areas.