Relationship between Industry Agglomeration and Firm Productivity : Evidence from Taiwan Electronic Industry

In this thesis we use the data of Taiwan’s electronic firms from the period of 2004 to 2009, aiming to understand the relationship between the phenomenon of industrial agglomeration and firm’s productivity. First we adopted EG index and NNh method to describe overall geographical cluster of the industry. From the perspective of production EG index, it has an average of 0.0002 and is defined to be in the range of lowly concentrated industry. However, if we focus on the situation in manufacture of electronic parts and components industry, average came out to be 0.0253. This shows that agglomeration divergence of different sub-sectors within the industry do exists, and ICT industry is still relatively concentrated in accordance with past research. Average R&D EG index is about 0.0917, which means the research activities in the indsutry are highly concentrated. In the other hand, NNh method points out that electronic firms’ factories are located around the northern, middle and southern part of Taiwan, and close to major cities, which implies that the delopment of Taiwan’s electronic firms is closly related to urbanization. Finally we sort out a balanced panel dataset that has 28320 observations and fit two panel regression fixed effect models with price-adjusted labor productivity as dependent variable. There are three major results: (1) Both production and R&D agglomeration has non-linear relationship with productivity, which implies that the effect of negative externalities outruns that of positive externalities and has resulted in agglomeration diseconomies. (2) NNh method has similar results compared to EG Index and could be furthur examnied in the future. (3) Higher Average employee salary, smaller size of factories and larger R&D expenditures are significantly resulted in higher firm productivity.