Agglomeration, Dispersion, and the Pioneer Firm

This paper models industry location as a process of successive stages of agglomeration, dispersion, and reagglomeration. External economies lead firms to agglomerate in an industry center. Agglomeration drives up wages in the center, compelling firms to move low-skill activities to low-wage regions. A pioneer firm provides intermediation services between outlying regions and the center. The result is a regional production network: an industry center served by high-volume production sites, where pioneers are active, and low-volume production sites, where they are not. Evidence from the Mexican garment industry supports the theory.