The authors investigate firms’ incentives to locate in the same region to gain access to a large pool of skilled labor. Agglomeration is welfare maximizing, because expected labor productivity is higher and firms choose a more effcient, technically diversified portfolio of R&D projects at the industry level.
Link
http://econpapers.repec.org/scripts/redir.pl?u=http%3A%2F%2Fwww.gesy.uni-mannheim.de%2Fdipa%2F64.pdf;h=repec:trf:wpaper:64