Intra-urban location of manufacturing employment in Colombia

Urban and Regional Report No. 79-10 URR- 7P 0 INTRA-URBAN LOCATION OF MANUFACTURING EMPLOYMENT IN COLOMBIA By Kyu Sik Lee August, 1979 (Revised) This report was prepared under the auspices of the City Study Research Project (RPO 671-47) as City Study Project Paper No. 5. The views reported here are those of the author, and they should not be interpreted as reflecting the views of the World Bank or its affiliated organizations. This report is being circulated to stimulate discussion and comment. Urban and Regional Economics Division Development Economics Department Development Policy Staff The World Bank Washington, D.C. 20433 - ii - TABLE OF CONTENTS Page List of Tables . . . . . . . . . . . . . . . . . . . . . iii Abstract . . . . . . a * * * * . . . . . . . . . . . . . iv 1. Introduction . . . . . . . . . . . . . . . . . . . . . . 1 2. Overview of Manufacturing Employment in Bogota and Cali: Comparisons with U.S. Cities . . . . . . . . . 2 3. Spatial Distribution of Employment: Evidence of Decen- tralization . . . . . . . . . . . . . . . . . . . . . 6 4. Composition of Changes in Spatial Distribution of Employment: The Incubator Hypothesis . . . . . . * * 9 5. Spatial Concentration of Industries: A Test of Agglomeration Economies . . . . . . . . . . . . . . . 15 6. Summary of Findings and Concluding Remarks . . . . . . . . 26 The Zone System (Map) a p * . * * * * * * * . . . . . . . 29 Footnotes . . . * * * * * * . . * . * . . . . . . . . . . 30 References . . . . . . . . . . . . . . . . . . . . . . . 33 *An earlier version of this paper was presented at the American Economic Association meetings, Chicago, Illinois, August 29-31, 1978. Support for the work reported in this paper was provided by the City Study research project (RPO 671-47) funded by the World Bank. The views and conclusions reported here are those of the author and not of the World Bank or its affiliated org- anizations. The author would like to thank M. Wilhelm Wagner and Yoon Joo Lee for research assistance, members of the City Study research staff at the World Bank and at Corporacion Centro Regional de Poblacion in Bogota for comments on the work pres- ented here, with particular appreciation to Gregory K. Ingram, Jose Fernando Pineda, and Roger Schmenner. - iii - LIST OF TABLES AND FIGURES TABLES Page 1. Manufacturing Firm Size and Employment Distribution: Comparisons of Bogota and Cali with U.S. cities . . . . . . 4 2. Birth, Death, and Relocation Rates in Bogota, Cali, and U.S. cities . . . . . . . . . i e * * * * * * * * * * * * * 3. Distribution of Manufacturing Employment by Ring, 7 Bogota, 1970-75 . . . . . . . . . . . . 0 - 7 5 . * * * * * 4. Distribution of Manufacturing Employment by Radial Sector, Bogota, 1970-75 . . . . . . . . . . . . . . . . 0 - 7 5 * * 8 5. Composition of Changes in Manufacturing Employment by 10 Ring, Bogota, 1970-75 . . . . . . . . . . . . . . *0-* 6. Selected Analysis Zones and "Incubation" Areas in Bogota . . . 13 7. Origin and Destination of Movers, Bogota . . . . . . . . . . . 14 8. Distribution of Manufacturing Employment by Ring and Industry, Bogota, 1970 and 1975 . . . . . . . . . . . . . . 17 9. Standard Distances of Establishments by Firm Size, Bogota, 1970-1975. . . . . . . . . . . . . . * * * * * * * * * * * 19 10. Standard Distances of Establishments by Firm Type for Selected Industries, Bogota, 1970-1975 . . . . . . . . . . . 21 FIGURES 1. Contiguity Index and Standard Distance, Manufacturing Employment, Bogota, 1975 ... . . . . . . . . . . . 25 - iv - ABSTRACT This paper describes the spatial distribution of manufacturing employment in Bogota and analyzes the changes in the location patterns over the 1970-1975 period using industrial directory data. The analysis shows strong evidence of the spatial decentralization of manufacturing employment owing to a steady movement of firms outward from central areas; new large firms with more than 100 employees tend to locate near the periphery while the births of small firms tend to take place near the center. Measures of concentration indicate an increasing dispersion of manufacturing establishments during the period. 1. Introduction Changes in the patterns of intra-urban location of manufac- turing employment have been fairly well documented for cities in developed countries, particularly for large cities in the U.S. and U.K,, where the decentralization of manufacturing employment has been observed for the past several decades.2 Comparable studies for rapidly growing cities in less developed countries (LDCs), however, are rare. The location of employment tends to influence residential locations and sets the basis for the overall development patterns in an urban area. As the first step in a continuing research effort, this paper presents findings for Bogota, Colombia which also show a strong decentralization of manufacturing employment. In the theoretical literature, the location behavior of a firm has been typically postulated in the neoclassical framework: given price gradients for rents and wages, transport costs of inputs and outputs, and the location of markets, a firm will tend to locate where it maximizes its profits.3 In the recent empirical literature on employment location a popular approach has been to investigate not only the growth and decline of stationary (non-relocating) firms but also the location decision of newly established firms and relocating firms, and analyze changes in the location patterns at the margin. Such empirical analyses require micro establishment data. Since the 1970 Economic Census, the National Statistics Department (DANE) of Colombia has been updating its annual industrial directory files which -2- provide information on individual establishment operations including location, production, sales, and input uses. These data for the 1970-1975 period revealed a strong trend of decentralization of manufacturing employment.5 To fully exploit the data content we did the analysis by the location tenure of firms, i.e., newly established (births), defunct (death), relocating (movers), and stationary (mature) firms. This amounts to decomposing changes in the stock of employ- ment by the flows of births and deaths, relocation of jobs, and stationary growth and decline of employment. The location of births and the desti- nation of movers are particularly important for understanding the location dynamics of employment and predicting the future spatial structure of an urban area. 2. Overview of Manufacturing Employment in Bogota and Cali: Comparisons With U.S. Cities According to a 1977 household survey ,in both Bogota and Cali, about 37 percent of the population were in the labor force: more than one million people were employed in Bogota while over a third of a million worked in Cali. Manufacturing jobs accounted for 25 percent of employment in Bogota and 30 percent in Cali. This share was the largest among all sectors in Cali, while in Bogota, it was second only to the services sector which had 32 percent of the city's employment. Large U.S. cities such as Boston, Chicago, and Los Angeles also have about 25 to 30 percent of employment in manufacturing. -3- The firm size distribution in Bogota, compared in Table 1, is not much different from that of Call except that Cali has proportionally more firms of the largest size. The firm size distribution of Bogota looks much like that of Washington, D.C., although the latter has only a small amount of manufacturing employment. Cali, in contrast, resembles Los Angeles in terms of the firm size distribution as well as its share of manufacturing employment; Cali, however, has a smaller proportion of employment in the 500 c: more category than Los Angeles. Moreover, in this last category, the average firm size in Bogota is only about half of those in large U.S. cities. In terms of employment dynamics, Table 2 indicates that Colombian cities are somewhat different from U.S. cities. At an annual rate of 8.8 percent, the birth rate of firms in Bogota is higher than that of all five U.S. cities. Phoenix, with a birth rate of 7.6 percent, comes closest to Bogota's and is slightly higher than Cali's. The average death rate in Bogota, as well as in Cali, is comparable to that of Cleveland, Minneapolis, and Boston. It should be noted that the birth rate is greater than the 9 death rate for Bogota, Cali, Phoenix, and New York; the opposite is true in Boston, Minneapolis, and Cleveland. In all cases, the activity rates in terms of establishments are greater than the rates based on employment. This indicates that the mar- ginal firms are small ones which have a greater propensity to move, to start up and close down business. During 1970-1975, nearly 60 percent of firm births and deaths were in the 10-24 person category in Bogota as well -4- Table 1 MANUFACTURING FIRM SIZE AND EMPLOYMENT DISTRIBUTION: COMPARISON OF BOGOTA AND CALI WITH U.S. CITIES A. Firm Size Distribution a/ Size Bogota Cali Washington, DC Boston Chicaco Los Angeles (persons) % cumm. % cumn. % cumm. % cumm. % cumm. % cumm. less than 20h/ 57.55 57.55 55.25 55.25 59.11 59,11 50.39 50.39 46.89 46.89 53.03 53.03 20 - 49 24.17 81.72 22.45 77.70 24.53 83.64 25.08 75.47 24,06 70.95 24.48 77.51 50 - 99 10.11 91.83 11.95 89,65 8.88 92.52 12.93 88.40 11.60 82.55 11.18 88.69 100 - 499 7.43 99.26 9.33 98.98 6.54 99.06 10.05 98.45 14.61 97.16 9.84 98.53 500 or more 0.75 100.00 1.02 100.00 0.93 100.00 1.56 100.00 2.84 100.00 1.46 100.00 a/ B. Employment Distributio6- less than 2Ob' 14.25 14.25 10.78 10.78 12.17 12.17 7.57 7.57 4.95 4.95 8.07 8.07 20 - 49 18.26 32.51 12.71 23.49 17.47 29.64 12.28 19.85 8.37 13.32 13.48 21.55 50 - 99 17.31 49.82 15.79 39.28 13.63 43.27 13.92 33.77 9.00 22.32 12.40 33.95 100 - 499 35.74 85,56 36.32 75,60 31.20 74.47 31.15 64.92 33.42 55.74 30.79 64.74 500 or more 14.45 100.00 24.39 100.00 25.54 100.00 35.08 100.00 44.26 100.00 35.25 100.00 C. Average Firm Size (persons) less than 20 9.95 10.07.- 9.07 9.78 9.60 9.53 20 - 49 30.35 29.21 31.35 31.86 31.57 34.48 50 - 99 64.80 68.12 67.61 70.05 70.46 69.47 100 - 499 193.34 200.81 210.00 201.78 207.66 195.87 500 or more 771.63 1233.00 1,203.50 1,465.40 1,416.58 1,509.07 Total 40.18 51.58 44.04 65.07 90.80 62.62 (1,000 persons) Population S/ 3,453 1,057 2,862 2,754 6,978 7,041 Total employmentq'A) 1,157 351 1,110 1,098 2,503 2,596 M.f1 emplovnentc/ (W) 291 106 67 262 782 719 Mfg empl. share (%) (25.16) (30.20) (6.04) (23.87) (31.20) (27.70) a/ 1970 forBogota andCali; and 1973 for U.S. cities. Al1 U.S. figures are zor central city. b/ For Bogota and Cali, this category covers 5-19; and for U.S. cities, 4-19. c/ 1977 estimate for the Special District of Bogota and Cali; 1970 U.S. census SMSA figures for U.S. cities. Sources: Fizures for U.S. cities are from Gregory K,. Tn,ram, "ReductionF in Auto Use from Carpools and Improved Transit," liarvard University, October, 1976; they are cierived from County Business Patterns, 1973, and data on journey to work (Table 2) of the 1970 U.S. Census. -5- Table 2: BIRTH, DEATH AND RELOCATION RATES IN BOGOTA, CALI AND U. S. CITIES Births Deaths Morrd- Establish- Employment Establish- Employment Establish- Employment ments ments ments % of Annual % of Annual % of Annual % of Annual % of Annual % of Annual base rate base rate base rate base rate base rate base rate a! Clevelandal 9.97 3.22 2.59 0.86 14.07 4.49 7.75 2.52 13.83 4.41 5.77 1.89 Minneapolis- 12.29 3.94 6.17 2.02 18.00 5.67 11.25 3.62 15.93 5.05 8.28 2.69 St. Paul a/ Boston- 6.10 1.99 1.30 0.43 13.40 4.28 8.00 2.60 9.80 3.17 4.70 1.54 Phoenix-- 24.40 7.55 12.10 3.88 20.20 6.32 5.30 1.74 8.90 2.88 4.70 1.54 b/. New York-K. 10.21 4.98 3.95 1.96 7.56 3.71 3.55 1.76 11.45 5.57 1.24 0.62 Bogota- 52.38 8.79 31.96 5.70 27.01 4.90 12.61 2.40 19.12 3.56 16.59 3.12 c/ Cali 43,13 7.44 24.48 4.48 26.88 4.88 11.27 2.16 18.33' 3.42 10.40 2.00v a From R. Struyk and F. James, Intrametropolitan Employment Location, Lexington Books, 1975; covered 1965-68 period (1965 was the base year). b/Y From R. Leone, Location 'of Manufacturing Activity in the New York Metropolitan Area, 1971; covered 1967-69 period (1967 was the base year). c The period covered was 1970-1975; 1970 was used as the base year. The base year figures can be seen in iee (e19787 d/ In the case of Bogota, the figures include establishments which moved at ieast to another seccion changing DANE's six-digit zone code; in the case of Cali the figures include establishments which moved at least to another barrio changing the first four digits of DANE's zone code. Including the moves within the same seccion, the annual relocation rate of establishments was 5.12 percent for Bogota and 4.28 percent for Cali. -6- as in Cali; moreover, the median age of establishments, as of 1970, was 4.5 years in both cities. Small, young firms therefore seem to contribute significantly to the changes in employment distribution in Colombian cities. 3. Spatial Distribution of Employment: Evidence of Decentralization DANE's zone system divides Bogota into 38 comunas. To analyze changes in employment location patterns, we devised two zone systems by aggregating comunas into six "rings," and eight "radial sectors" (see the map). Tabulations of employment using the six rings, reported in Table 3, provide strong evidence of decentralization of manufacturing employment in Bogota: Ring 1 experienced an absolute decline in employment; moving out from the central business district (CBD), we observe an accelerating employ- ment growth which reaches an annual rate of 16 percent in Ring 5. The system of eight radiel sectors follows the patterns of land use specialization in Bogota. The "industrial corridor," which bisects the city into the north and the south, is Radial Sectors IV and V. The resi- dential north is Sector VIII, and the residential south is Sector II. The residual southwest area is labeled Sector III; the residual northwest is further divided into Sector VI, containing the airport, and Sector VII, which includes the "commercial corridor" of Chapinero areas and the residential northwest. As Table 4 shows, manufacturing employment growth was lowest in two residential sectors (II and VIII). In addition, employment growth in Sectors IV and V ("industrial corridor") was slightly lower than the overall -7- Table 3: DISTRIBUTION OF MANUFACTURING EMPLOYMENT- BY RING, BOGOTA, 1970-75 1970 1975 Annual Average Ring Persons % Persons % Growth Rate (%) 1(CBD) 4,538 5.60 4,102 3.47 -2.00 2 11,767 14.53 14,898 12.59 4.83 3 34,351 42.42 47,858 40.44 6.86 4 18,112 22.37 25,958 21.94 7.46 5 11,548 14.26 24,047 20.32 15.80 6 391 0.48 729 0.62 13.27 n.a. 266 0.33 741 0.63 - Total 80,973 100.00 118,333 100.00 7.88 a/ Establishments with 10 or more employees. Data Source: DANE Industrial Directory File. -8- Table 4: DISTRIBUTION OF MANUFACTURING EMPLOYMENT- BY RADIAL SECTOR, BOGOTA, 1970-75 1970 1975 Annual Average Radial Sector Persons % Persons % Growth Rate (%) I CBD 4,538 5.60 4,102 3.47 -2.00 II South 2,451 3.03 3,218 2.72 5.60 III Southwest 6,255 7.72 12,741 10.77 15.29 IV&V Industrial Corridor 57,833 71.42 84,362 71.29 7.84 VI Airport 3,532 4.36 5,333 4.51 8.59 VII Northwest 1,960 2.42 3,493 2.95 12.25 VIII North 4,138 5.11 4,343 3.67 0.97 n.a. 266 0.33 741 0.63 - Total 80,973 100.00 118,333 100.00 7.88 a/ Establishments with 10 or more employees. Data Source: DANE Industrial Directory File. -9.- growth rate. These sectors had lower than average employment growth, thus reducing their relative shares of manufacturing employment during the period. The "residual" sectors (III, VI, and VII), in contrast, increased their relative shares of manufacturing employment. Evidence for the decentraliza- tion of employment from the industrial corridor to the non-residential sectors is also supported by the extremely high employment growth in Sector III (15%) and Sector VII (12%). 4. Composition of Changes in Spatial Distribution of Employment: The Incubator Hypothesis To study changes in employment levels over time and space, we created a master file with the following categories of firms: (1) mature firms - those that appeared in all six annual directories with the same address; (2) births - those that appeared for the first time in any year during 1971-1975 and kept the same address; (3) deaths - those that dissappeared from the directory during 1971-1975 after having kept the same address;and (4) movers - those that relocated within Bogota during 1971-1975, including births and deaths that changed the address during the period. As indicated earlier, changes in spatial patterns of employment can best be understood by examining the location behavior of establishments by their location tenure. In Table 5, we find that the 4.7 percent growth of employment in mature firms was much lower than the overall growth rate of 7.9 percent (Table 4).10 While mature firms in Ring 5 grew at a rate close to the overall average, those in the CBD and Ring 2 grew more slowly than those in the other rings. The lowest growth of mature firms in Ring 2 with Table 5: COMPOSITION OF CHANGES IN MANUFACTURING EMPLOYMENTaf BY RING, BOGOTA, 1970-75 Mature h/ Births b/ Deaths b/ Movers 1970 1975 At Origin At Destination Ring Persons % Persons % Persons % Persons % Persons % Persons % 1(CBD) 2,364 3.95 2,828 3.76 1,011 4.16 581 6.24 1,659 14.80 433 3.22 2 7,136 11.92 8,211 10.93 4,310 17.73 1,701 18.28 2,726 24.32 1,772 13.19 3 26,291 43.93 32,807 43.67 8,393 34.52 3,663 39.36 4,689 41.82 4,535 33.77 4 14,591 24.38 17,701 23.56 4,554 18.73 1,611 17.31 1,697 15.14 3,273 24.37 5 9,149 15.29 13,035 17.35 5,332 21.93 1,677 18.02 358 3.19 3,351 24.95 6 119 0.20 29 0.04 487 2.00 44 0.47 82 0.73 66 0.49 n.a. 191 0.32 519 0.69 224 0.92 29 0.31 - - - - Total 59,841 100.00 75,130 100.00 24,311c/ 100.00 9,306d/ 100.00 11,211 100.00 13,430 100.00 Summary Statistics Annual Stationary Annual / Annual Origin/Destination Ring Growth Rate(%) Birth Rate(%) Death Rate(%) Ratio of Movers 1(CBD) 3.65 4.10 2.44 3.83 2 2.85 6.44 2.74 1.54 3 4.53 4.47 2.05 1.03 4 3.94 4.59 1.72 0.52 5 7.34 7.89 2.75 0.11 6 - 17.56 2.16 1.24 Total 4.66 5.39 2.20 0.83 a/ Excluded those establishments with less than 10 employees, that appeared only for one year in the directory. The accounting Identity between (1) the change in stock of employment in Table 3 and (2) the sum of flows and stationary growth In Table 5 does not hold mainly because of the omission of 135 firms (out of 2,629) which could not be cladilfied into the four location tenure categories. See Lee (1978)for details. 1/ Excluding movers. _v At birth. d/ In 1970. e/ Annual average rate based on 1970 manufacturing employment (Table 3). Dita Source: DANE Industrial Directory Files. - 11 - fairly high employment concentration may indicate the existence of capacity constraint. In addition, we observe that nearly 60 percent more jobs were created by newly founded firms than by mature ones. In all rings, the number of jobs created by births was more than the number resulting from the growth of mature firms; in Ring 2, the former was four times larger than the latter. It is striking that Ring 2 has the lowest growth of mature firms but is also a high birth area; its annual birth rate is higher than the industry average. Moreover, many firms start business in Ring 2 and then move out of this area. This may be evidence for the modified casell of the incubator hypothesis, which states that small, new firms tend to locate in centralized areas that provide essential services such as production space and financial services. Based on the criteria similar to those used by Struyk and James (1975), the incubator hypothesis is supported in Riig 2 as follows: the area's percentage share of employment by births (18%) is greater than its share of base year employment (15% in Table 3). This is also true for Rings 5 and 6, but these areas are disqualified from being an "incubation area" because their new firms are not small. Ring 5 is impres- sive in terms of attracting new firms and movers; the annual birth rate was highest (except for Ring 6 which had a small employment base), and the inflow of jobs into Ring 5 was also more than ten time the outflow. It should be noted that the percentage distribution of births across the rings was very similar to that of deaths. To test the incubator hypothesis more specifically, we have defined 28 analysis zones by intersecting six rings with eight radial - 12 - 122 sectors (see the map);12 we then determined as an incubation area those with the following characteristics: (1) the area has a high concentration of births; (2) the area's percentage share of employment by births is greater than the corresponding share of base year employment; and (3) the average firm size of births is small (i.e., about 25 persons). The areas shown in Table 6 had a high concentration of births; it is interesting to find that in the CBD and the industrial corridor in Rings 3 and 4 the share of employment by births was smaller than the share of base year employment. On the other hand, in the industrial corridor in Ring 5 and in Ring 2, the employment share by births was greater than the corresponding share of base year employment. In Ring 5, however, the average firm size of births was about 100 persons, indicating that the birth of large firms indeed occurs near the periphery. Only the industrial corridor in Ring 2 and the north- west (Chapinero) area therefore pass all three criteria for an "incubation area." To examine the direction of relocating firms, Table 7 considers six subareas, defined by the CBD, three segments of the industrial corridor, the north (Sectors VI, VII, and VIII) and the south (Sectors II 13 and III). For these six subareas, a matrix of origin and destination was constructed in terms of the number of relocating establishments (Table 7). Nearly 40 percent of the movers relocated within their same subareas; 37 firms (13%) moved within analysis zones (AZ) 34 and 35 alone. Only one- third of these 37 firms had more than 50 employees while about a half of the firms that moved from Ring 3 to Rings 4 and 5 in the industrial corridor were large size firms; long-distance movers tend to be large size firms. Table 6: SELECTED ANALYSIS ZONES AND "INCUBATION" AREAS IN BOGOTA Employment Share (%) Ratio Average Firm Size (persons) Analysis Zone (AZ) 1970 Base (1) Births (2) (2)/(1) 1970 Base Births CBD (AZ 11) 5.60 4.16 0.74 32.0 37.4 Ind. Corridor (AZ 24,25) 11.11 15.07 1.36 36.0 27.5 Northwest - (AZ 27,37,47) 2.16 5.94 2.64 21.3 20.3 Ind. Corridor (AZ 34, 35) 37.80 26.47 0.70 61.3 32.2 Ind. Corridor (AZ 44,45,54) 22.50 15.66 0.70 94.4 50.8 b/ * * Southwest - (AZ 53) 3.20 5.85 1.83 99.6 94.8 c/ * * Ind. Corridor- (AZ 55) 0.01 4.24 424.00 11.0 114.4 SUBTOTAL 82.38 77.39 0.93 55.9 35.5 TOTAL (Bogoti) 100.00 100.00 1.00 55.1 34.1 a/ This zone contains Chapinero commercial areas. b/ Includes Bosa c/ Includes Fontibon Note: indicates passing a criterion to be an "incubation area". Data Sources: DANE Industrial Directory files. - 14 - Table 7: ORIGIN AND DESTINATION OF MOVERS.., BOGOTA (Number of Firms) Destination AZ24 AZ34 AZ44, CBD- & 25 & 35 45,54 North South Total & 55 CBD 12 7 10 3 6 4 42 (2) ./ (1) (3) (1) (1) (1) (9) AZ24&25 2 11 18 5 3 6 45 (0) (0) (1) (2) (1) (1) (5) AZ34&35 0 12 37 26 6 7 88 (4) (12) (13) (1) (4) (34) AZ44,45 0 2 6 10 4 2 24 54,&55 (1) (2) (4) (2) (2) (11) North 2 2 7 13 29 4 57 (1) (0) (2) (5) (2) (1) (10) South 0 3 4 5 3 10 25 (1) (1) (1) (1) (3) (7) TOTAL 16 37 82 62 51 33 281 (3) (7) (21) (26) (7) (11) (75) a/ Establishments with 10 or more employees. b/ For definition of zones, see the map. AZ refers to analysis zone. c/ The number of establishments with 50 or more employees at destination. Data Source: DANE Industrial Directory files. - 15 - As expected, the CBD experienced a net loss of firms: 30 moved out of the CBD while only 4 moved into that area. Rings 2 and 3 in the industrial corridor and the north also lost more establishments than they. gained, while the reverse happened in the south and in Rings 4 and 5, which attracted the largest number of movers: 52 establishments moved into that area while only 14 moved out. Among the six subareas, a relatively large number of firms relocated from the CBD to Rings 2 and 3 in the industrial corridor, from Ring 2 to Ring 3, from Ring 3 to Rings 4 and 5, and also from the north to Rings 4 and 5 of the industrial corridor; only a few firms relocated from the CBD to as far as Rings 4 and 5. The fact that a large number of firms are moving out of Ring 2 is consistent with the incubator hypothesis tested above. 5. Spatial Concentration of Industries: A Test of Agglomeration Economies The analyses presented above revealed changes in employment location for all manufacturing. Such patterns will, however, vary across industries since the location decisions of individual firms will depend partly on the characteristics of their parent industries. After describing the spatial concentration of industries in Bogota, we will then examine to what extent the concentration of industries in particular locations might influence the location decisions of firms. The hypothesis is that in the presence of agglomeration economies, the location patterns of new firms will follow those of the parent industries. - 16 - The degree of employment concentration varies across industries in Bogota. Of the 29 three-digit industries, about 80 percent of the total 15 employment was concentrated in the largest 12 industries. As shown in Table 8, all industries except for the plastic industry had their highest concentration of employment in Ring 3 during the 1970-75 period, as was the case for the total manufacturing. In six of these industries, the employment share in Ring 3 was higher than the industry average, but in most areas its decline during the period resulted in a greater dispersion of employment. In all twelve industries, there was a substantial degree of decentralization of employment. The durable industries shown in Table 9 maintained a large share of employment in Ring 4 as well as in Ring 3 during the period. In the case of the plastic industry, the employment share was highest in Ring 5. It should also be noted that, as in large U.S. cities, employment in the printing industry in Bogota is also concentrated in the CBD. Although there was a shift of employment in this industry to Ring 3, 24 percent of the printing industry's jobs were located in Ring 1 in 1975. The above description is with respect to the distance from the city center. In order to measure the extent of industrial concentration around a centroid of industries, we have computed the "standard distance,"16 using the following statistic: Table 8: DISTRIBUTION OF MANUFACTURING EMPLOYMENTA! BY RING AND INDUSTRY, BOGOTA, 1970, 1975 (%) Food Beverages Textile Apparel Furniture Printing (311) (313) (321) (322) (332) (342) Ring 1970 1975 1970 1975 1970 1975 1970 1975 1970 1975 1970 1975 1 5.0 2.9 - 0.5 2.7 1.1 18.5 9.5 3.1 2.0 28.0 23.6 2 15.2 15.5 30.9 4.3 15.4 11.0 17.2 23.2 19.6 5.1 15.4 10.7 3 62.9 53.8 54.2 52.9 46.1 44.0 49.6 46.7 36.8 48.6 29.6 38.7 4 5.0 9.2 12.7 16.7 25.8 25.9 3.3 12.5 32.3 31.7 22.6 20.2 5 11.8 18.1 2.2 25.6 9.2 17.2 11.4 8.1 8.2 12.6 4.4 5.9 6 - 0.5 - - 0.8 0.3 - - - - - 1.1 n.a. 0.2 - - - - 0.7 - 0.1 - - - Total 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 Other Chemical Plastic Fabr. Metal Non-electric Elec. Mach. Transport Machine Equipment (352) (356) (381) (382) (383) (384) 1970 1975 1970 1975 1970 1975 1970 1975 1970 1975 1970 1975 1 0.3 0.2 1.1 0.4 8.2 0.1 2.7 1.2 4.4 0.6 1.2 0.1 2 17.5 14.6 4.3 5.3 12.5 13.2 5.8 7.4 16.5 11.0 7.3 8.3 3 38.8 34.5 26.6 30.8 33.9 34.5 42.6 36.9 33.2 48.0 39.7 28.5 4 17.7 19.3 13.4 12.1 32.3 33.2 28.1 25.4 34.4 27.8 28.8 29.5 5 25.8 31.1 48.1 40.3 13.2 18.5 20.8 28.7 11.5 12.6 22.9 33.5 6 - 0.3 0.3 - - 0.5 - 0.4 - - - - n.a. - - 6.2 11.1 - - - - - - - - Total 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 a/ Establishments with 10 or more employees. Data Source: DANE Industrial Directory Files. - 18 - (x- 2 -2 E E (X x ) + E E. (y - y.) i i3 i j i i3 i 3 d.= \~ EE i ij ZE, Ex. E E..y where x.= i I3 I i j i J -JJ , y ij E.. E.. i 13 i )J Eij the number of employment in the jth industry in the ith area; (x. , y.) = the center of the ith area in terms of x, y I I coordinates; and (x , y ) = the location of centroid of the jth industry. This formula measures a standardized distance, weighted by the number of jobs (or establishments), from subareas where jobs are located to the centroid of jobs in a particular industry. The value of standard distance will show the degree of concentration relative to the industry's centroid. The standard distances are estimated for all manufacturing establishments for the six years from 1970 through 1975. Table 9 shows that the standard distances increased over time as average firm size increased,indicating the general tendency of greater industrial dispersion. We also find that the standard distances of small firms were consistently shorter than those of large firms. The differences in the orders of magnitudes, however, are too small to suggest any definite tendency for small firms to cluster in the presence of - 19 - Table 9 STANDARD DISTANCES OF ESTABLISHMENTS./ BY FIRM SIZE, BOGOTA, 1970-1975 b/ c/ Standard Distance (Km) Average Proportion of - Less than 25 or more Firm Size Small Firms 25 Persons Persons All Firmsb/ (persons) (%) 1970 3.54 3.69 3.66 55.1 49.0 1971 3.65 3.70 3.72 57.3 47.3 1972 3.54 3.85 3.76 62.1 44.4 1973 3.83 4.02 3.97 60.8 45.4 1974 3.94 4.02 4.02 63.6 43.7 1975 4.01 4.04 4.06 64.7 42.7 a/ 10 or more employees. b/ All firms with 10 or more employees. c/ Less than 25 category. Data Source: DANE Industrial Directory Files. - 20 - 17 agglomeration econonomies. Although we also computed estimates of standard distances at the 3-digit level, they showed no consistent differences between small and large firms. Moreover, the values of standard distances for small firms tended to increase during the five-year period. This again confirms the general tendency for industries to disperse over time. Table 10 reports the values of standard distances for the 12 leading industries in Bogota. First, we observe that the values of standard distances increased between 1970 and 1975 for all industries except textile, plastic, and electric machinery. These results support the general trend of increasing industrial dispersion, while having revealed some industries with increasing concentration.18 In Table 10, the location patterns of mature firms are compared with those of new (births) and defunct (deaths) firms. The standard distances of mature firms do not vary much across industries and their values are smaller than those of births for all industries reported except beverages and plastic. This implies that new firms 19 locate differently than mature firms, i.e., they tend to locate farther from the centroid of a given industry. This observation holds for the births of small establishments as well as large ones in most industries. It is possible that new firms are unable to compete against existing establishments for the limited space in the centralized location, or that additional space may not be available. - 21 - Table 10: STANDARD DISTANCES OF ESTABLISHMENTSa/ BY FIRM TYPE FOR SELECTED INDUSTRIES, BOGOTA, 1970-75 Births All SIC Industry Mature Small Large All b/ Deaths 1970 1975 (kin) Non- Durable 311 Food 3.04 4.78 5.66 5.18 3.97 3.22 3.97 313 Beverages 2.83 2.53 - 2.53 0.86 3.25 3.32 321 Textile 3.88 4.28 3.60 4.26 4.74 4.09 3.96 322 Apparel 2.96 3.74 3.74 3.81 3.89 3.31 3.58 352 Other chemical 3.36 4.91 5.78 5.37 4.73 3.33 4.25 Durable 332 Fur-iture 3.79 4.08 3.25 3.93 4.12 4.02 4.29 342 Printing 2.94 2.67 5.80 4.19 2.00 2.74 3.50 356 Plastic 3.48 2.89 3.63 3.25 5.97 3.98 3.01 381 Fabricated Metal 3.54 3.66 5.61 4.41 2.41 3.29 3.72 382 Non-electric Machinery 2.65 3.83 3.35 3.66 3.19 2.85 3.36 383 Electrical Machinery 2.67 2.62 2.54 2.65 3.55 2.94 2.83 384 Transportation Equipment 3.26 3.94 4.94 4.35 2.35 3.10 4.16 a/ Establishments with 10 or more employees. b/ Small establishments have less than 25 employees. Data Source: DANE Industrial Directory Files. - 22 - Moreover, small new firms gain the advantage of agglomeration economies near the CBD, i.e., in the "incubation" area which does not coincide with the centroids of industries. Our findings in the previous section support this observation: Table 6 showed that the incidence of births relative to base year employment share was low in the centralized industrial districts (Rings 3 and 4 in the industrial corridor) where the concentration of manufacturing employment was highest. The plastic, the beverages, and the electric machinery industries are the only cases where the standard distance of births was shorter than that of mature firms. Of the industries not reported in Table 10, this was also true for the leather, paper, instruments, and "other manufacturing" industries.20 This can be interpreted as evidence for the presence cf agglomeration economies in the sense that new firms tend to follow the location patterns of the stock of 21 mature firms. It is striking that the value of the standard distance of deaths was the largest for the plastic industry; this may indicate that the incidence of deaths was high for those firms that were located far away from the industry's cluster of firms. As mentioned earlier, the standard distance of the textile industry decreased over time as did those of the plastic and the electric machinery industries. The standard distance of all firms in an industry will decrease whenever the standard distance of births is shorter than that of the stock of mature firms; i.e. the degree of concentration increases. It is then apparent that we observe - 23 - the prevalence of agglomeration economies in the textile industry as well as the seven industries mentioned above, namely, the plastic products, beverages, electric machinery, leather, paper, instruments, and "other manufacturing" industries. These eight industries together, however, accounted for only 32 percent of the total manufacturing employment in 1975. The standard distance as a measure of the degree of concentration does not show the possibility of multi-centers of employment. In order to dis- criminate such a possibility from the single-centeredness of employment, an "index of contiguity" has been constructed as follows. First, a measure of proximity (P) of the jth industry's employment to the sth subarea is defined in terms of employment (E) and distance (d) between subareas s and t: P. E. js E -t , j = 1, 2, ... 12; s,t = 1, 2, ... 38, t d2 tos st where 38 comunas are used as subareas. Thus, the value of Pjs will be high when a large amount of the jth industry's employment is located in subareas near the sth area. The contiguity index for the jth industry (C.) is then defined as the correlation coefficient between P. and E. across all 38 subareas, namely C. = C (P. , E. ), where 0 < C. < 1. j is js 3 - A high value of C. means that when a subarea has a large (small) amount of the jth industry's employment, its surrounding subareas also have a large (small) amount of that industry's employment. The contiguity - 24 - index has been computed for the 12 major industries in Bogota for 1975, and their values are plotted against the corresponding values of the standard distances as shown in Figure 1. Based on these two measures, the spatial characteristics of the employment distribution can be sum- marized as follows: Standard Distance Contiguity Index Small Large High Single-centered Multi-centered Low Primate Dispersed It is possible that an industry with a high value of the contiguity index can have a large standard distance or a small one; the former represents a multi-centered case while the latter a single-centered one. An industry with a low value of the contiguity index tends to be widely dispersed if the standard distance is large; if small, the industry will be a primate case where most of its employment is located in a single subarea. Figure 1 shows that the contiguity index is inversely related with the standard distance, which indicates the single-centeredness of manufacturing employment in Bogota. Nevertheless, there is weak evidence of multi-centeredness for the fabricated metal and the non-electric machinery industries while the beverage industry has the primate characteristic. - 25 - Figure 1. CONTIGUITY INDEX AND STANDARD DISTANCE MANUFACTURING EMPLOYMENT, BOGOTA, 1975 0.61 0.5 ' 383 •381 0.4. •382 '311 321 0.3 322 0 352 0.2. 9 342 356 • 313 0.1.*33 •332 • 384 0 1 2 3 4 5 6 Standard Distance (Km) SIC codes: 311 = food, 313 = beverages, 321 = textile, 322 = apparel, 332 = furniture, 342 = printing, 352 = other chemical, 356 = plastic, 381 = fabricated metal, 382, non-electric machinery, 383 = electric machinery, 384 = transportation equipment Data Source: DANE Industrial Directory Files. - 26 - 6. Summary of Findings and Concluding Remarks The main focus of this paper was on the spatial distribution of manufacturing employment and its changes over the period 1970-75. In terms of birth, death, and relocation rates of manufacturing firms, we found a high degree of employment dynamics (i.e., changes at the margin) in both Bogota and Cali. The birth rate for firms in Bogota was higher than that for all five U.S. cities compared; only the rate in Phoenix, which was about the same as Cali, came close to Bogota's birth rate. As observed in large U.S. cities, the incidence of births and deaths in Bogota and Cali was concentrated in small establishments. Our analysis shows strong evidence of the spatial decentrali- zation of manufacturing employment in Bogota. While the central business district experienced a net loss of manufacturing jobs during 1970-1975, manufacturing employment grew at an accelerating rate with distance from the city center. We found a steady movement of jobs outward from central areas within as well as outside the industrial corridor. The outer rings of the southwest and northwest areas were especially attractive to new and relocating firms; firms locating near the periphery were mostly large ones. We also found distinct land use specialization patterns in Bogota. In the industrial corridor, which bisects the city into the residential north and the residential south and contains about three-fourths of manu- facturing employment in Bogota, the percentage share of employment slightly decreased during the five-year period. The annual growth rate of employment in mature firms was far lower than the overa1l growth rate in Bogota; the increase in the number of 4obs in - 27 - new firms (births) was about 60 percent more than the increase in mature firms. In Bogota, births and deaths of firms contributed significantly to changes in the spatial distribution of employment. Ring 2, which is contiguous to the CBD, had the lowest growth of mature firms but a high birth rate. For this area, our data support the modified case of the incubator hypothesis. By further spatial dis- aggregation, we identified the "incubation areas" as the analysis zones which are contiguous with the CBD in the industrial corridor, and the commerical corridor of the Chapinero area. The central industrial area's share of employment created by new firms was lower than its share of the base year employment. About 80 percent of manufacturing employment in Bogota is concen- trated in five non-durable and seven durable goods industries. The peak con- centration of employment in the non-durable goods industries was in Ring 3, while durable goods industries were concentrated in Ring 4 as well as Ring 3. All of these industries,with the exception of the plastic and the electric machinery industries, showed a substantial degree of decentralization. The estimates of "standard distances" revealed a general trend of increasing dispersion of manufacturing establishments over time. Nevertheless, by comparin,% the standard distances of firm births with those of mature firms, we found the degree of concentration increasing in the following industries: plastic, beverages, leather, paper, instruments, textile, electric machinery, and "other manufacturing." This may be due to the presence of agglomeration economies in their patent industries. - 28 - The values of the contiguity index along with the standard distances indicate the single-centeredness of manufacturing employment in Bogota. The findings in this paper provide evidence for a strong trend toward decentralization of Bogota's manufacturing employment, This trend is quite similar to what has occurred in large U.S. and European cities during the past several decades. Changes in production technology (requiring more space) and revolutions in transportation and communication were some of the major factors that produced employment decentralization in the U.S.; the same factors might well prevail in Bogota. -29- THE ZONE SYSTEM: BOGOTA (Based on 38 comunas) 3--7 4----'0-3 3-3 - 3- 2 1115 Ring Sector -if 3-3 Analysis Zone (ring-sector) - 30 - FOOTNOTES 1. A comprehsensive review of the literature on intra-urban manufacturing location can be found in Kemper (1973, Chapter 2); also, Struyk and James (1975) give a review of previous research related with this paper. 2. For example, Hoover and Vernon (1959), Leone (1971), and Hamer (1975). 3. See Alonso (1967), Mills (1972), and Ingram (1977). 4. This data set is very similar to the Dun and Bradstreet Market Identifier (DMI) data in the U.S., which have been used in recent employment location studies for U.S. cities. See Leone (1971), Schmenner (1973 and 1978), Kemper (1973), and Struyk and James (1975). These files, however, include only establishments with 10 or more employees. This group accounts for more than 70% of total manufacturing employment in Bogota. 5. This paper examines Cali as well as Bogota, but presents details for Bogota. 6. This approach was also used by Leone, Schmenner, Struyk and James, and Cameron (1973). 7. Published in DANE Statistical Bulletin, No. 309, April 1977. 8. This may include other than genuine births; for example, the birth category may include those moving into the area. - 31 - 9. This was true for New York in the late sixties. The situation may have been reversed by now. Both studies for U.S. cities, cited in Table 2, covered a two to three year interval in the late sixties. A study of such a short period may reflect only what happened in that particular portion of business cycle. In this respect, our data set is somewhat more attractive because it covers a 6-year period. 10. Even though one might expect that the 1974 recession affected the growth of mature firms, this would not have resulted in a difference of such a magnitude in the employment growth rate. 11. Hoover and Vernon (1959) were concerned with the incubation phenomenon in the city center. Struyk and James, however, "modified" the hypothesis by extending it to other centralized areas and traditional manufacturing districts. 12. An analysis zone is identified by a two-digit number: the first digit refers to the ring and the second refers to the sector. 13. See the map. 14. This is consistent with similar findings on Chicago by Moses and Williamson (1967). 15. Each of these 12 industries had at least 3 percent of the total employment. 16. Isard (1960) had attributed its origin to Bachi (1957). (The expression of this measure appearing in Isard (1960), however, has an error.) The form of the squared standard distance is - 32 - actually the same as that of the moment of inertia. 17. Without having internal economies of scale, small firms need to share facilities and service inputs among themselves; therefore, they are expected to cluster together or locate near the center of the parent industry. 18. Among those industries not reported in Table 11, the value of standard distance declined also for leather, industrial chemical, and "other manufacturing" industries. 19. Similar results were obtained by Cameron (1973) for the Clydeside conurbation in Scotland, but his measure was a simple average distance from the core of the central city. 20. These four industries together, however, had only 6 percent of total manufacturing employment in 1975. 21. In the study of the Clydeside conurbat4on in Scotland, Cameron (1973) concluded that new plants tend to "replicate the pattern of their parent industries with regard to their access to the center." This was interpreted as "evidence for the existence of significant agglomerative forces that mold the locational advantages for manufacturing activity" as stated by Struyk and James (1975). Cameron's test was based on the rank correlation coefficient between the average distance from the city center of new firms and that of existing firms across 84 Minimum List Heading industries. - 33 - REFERENCES Alonso, W. (1967), "A Reformulation of Classical Location Theory and Its Relation to Rent Theory," Papers of the Regional Science Association. Bachi, R. (1957), Statistical Analysis of Geographical Series, Hebrew University. Cameron, G. (1973), "Intra-Urban Location and the New Plant," Papers of the Regional Science Association. Hamer, A. (1975), Industrial Exodus from Central City, Lexington Books. Hanushek, E.A. and B.N. Song (1977), "The Dynamics of Postwar Industrial Location," Harvard University, Department of City and Regional Planning (Discussion Paper D77-3). Hoover, E.M. and R. Vernon (1959), Anatomy of a Metropolis, Harvard University Press. Ingram, G.K. (1976), "Reductions in Auto Use from Carpools and Improved Transit," Harvard University, Department of City and Regional Planning (Discussion Paper D76-10). Ingram, G.K. (1977), "Transportation-Land Use Interactions and Future Patterns of Urban Growth," Joint Center/NBER Conference, Cambridge, Mass. Isard, W. (1960), Methods of Regional Analysis, The M.I.T. Press. Kemper, P. (1973), The Location Decisions of Manufacturing Firms within the New York Metropolitan Area, unpublished Ph.D. dissertation, Yale University. Lee, K1S, (1978), "Distribution of Manufacturing Establishments and Employment in Bogota and Cali," City Study Workshop Paper, The World Bank, Leone, R. (1971), Location of Manufacturing Activity in the New York Metropolitan Area, unpublished Ph.D. Dissertation, Yale University. Leone, R. and R. Struyk (1976), "The Incubator Hypothesis: Evidence from Five SMSAs," Urban Studies. Lever, W.F. (1976), "Establishment Based Research: Conference Proceedings," University of Glasgow, Urban and R.gional Studies Discussion Paper No. 22. Mills, E.S. (1972), Urban Economics, Scott, Foresman. Moses, L. and H.F. Williamson, Jr. (1967), "The Location of Econoraic Activity," American Economic Review. - 34 - Schmenner, R. (1973), City Taxes and Industry Location, unpublished Ph.D. Dissertation, Yale University. Schmenner, R. (1978), The Manufacturing Location Decision, forthcoming. Struyk, R. and F. James (1975), Intrametropolitan Industrial Location, Lexington Books. im