Firm Agglomeration in Knowledge Intensive Business Service Sectors

We observe dense agglomerations of Knowledge-Intensive Business Services (KIBS) in large cities such as Tokyo and Osaka. Such urban features of KIBS stem from the fact that the main customers for KIBS are corporate headquarters (HQs), and KIBS’s main input is highly skilled labor. We adhere to the model proposed by Redding and Venables (2004) and present a monopolistic competition model. Our results indicate that improving access to the agglomeration of HQs and KIBS and knowledge agglomeration will strengthen market access and supply access and that KIBS firms will be even more inclined to establish locations in those municipalities.