| Summary: | Recently, macroeconomic growth of countries and the driving causes behind macroeconomic success have been one of the main attractions for economists all over the world. For this matter, many studies in different countries were employed by economists showing how dynamic externalities affect the economic growth. Studies mainly focus on three theories, namely MAR, Jacob’s and Porter’s theories. MAR theory claims that spatial concentration is necessary for growth of the industry and region. According to Jacob’s theory, economic growth is encouraged by diversification. Porter’s theory defends that externalities are maximized in concentrated competitive industries. This thesis builds on the work by Glaeser et al. (1992) on these externalities by using data taken from State Institute of Statistics (SIS) of Turkey. The objective is to investigate the impacts of dynamic externalities such as concentration, diversification and competition, on city‐industry employment growth. Using a two‐digit classification for manufacturing industry in Turkey between 1985 and 2001, the estimation results suggest that urban variety foster city‐industry employment growth.
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