The (strong) interdependence between intermediate producer services' attributes and manufacturing location

The empirical evidence shows that a high degree of co-location exists between intermediate producer services and manufacturers. This paper develops a theoretical model based on the Footloose Entrepreneur Model of the New Economic Geography in which intermediate producer services play an essential role in characterizing the industrial landscape. Our results show that the concentration of manufacturing is favored when the service sector has high price elasticity for any variety and is a very efficient sector in production and when the mobile-fixed factor, skilled workers, is important in the production of manufacturing. In a nutshell, to promote economic activity, the industrial policy and service sector policy should be coordinated.