Firm heterogeneity in industrial clustering of Indian manufacturing industries

ABSTRACT This investigation explores the micro-heterogeneity of industrial clustering of registered Indian manufacturing firms and examines the roles of Marshallian agglomeration and localization economies and location-specific policy incentives. The empirical results suggest that of localization economies, only inter-industry buyer–supplier relationships and labour market pooling play significant roles in industrial clustering. Location-specific incentives such as the designation of special economic zones have a positive effect on the co-agglomeration of industries, whereas location-specific tax incentives do not have such an effect, except in the cases of new entrants.