Marshallian and Jacobian Externalities in Creative Industries

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Jan 2022
Marshallian externalities are the benefits obtained by a sector due to geographical agglomeration, and Jacobian effects are spillovers related to the novel combinations that can occur in cities with diversified economic activities. This paper argues that most of the quantitative literature on creative industries is asking whether they are a source of Marshallian or Jacobian effects, inasmuch as a stronger creative sector is a direction of diversification that is likely to have positive spillovers to the rest of the economy. Exploring both questions under a common framework, the results are consistent with the existence of Marshallian but not of Jacobian effects, which calls to caution when making policy suggestions regarding the sector. The degree of specialization in creative sectors is associated with higher sales and a higher number of rms in those sectors, albeit at a decreasing rate. A similar relationship is found for specialization in creative occupations and the incomes of those workers. Though there is no evidence of spillovers from creative industries in general to the rest of the economy, analyses at a more disaggregated level could produce different results and useful insights for policy.