Identifying Growth Patterns of the High-Tech

Manufacturing Industry across the Seoul

Metropolitan Area Using Latent Class Analysis
Li Wan, Ph.D. 1; and Youngsoo An, Ph.D. 2

Abstract: Latent class analysis (LCA) is a well-established research method in social science for explaining observed correlations or vari-
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ance by identifying latent classes, but it has rarely been applied in urban studies. This paper provides an empirical case of using LCA to
identify the generic growth patterns of the high-tech manufacturing industry across locations in the Seoul metropolitan area (SMA). The
presented model uses standardized high-tech industry growth data processed from firm registration data in SMA (2009–2014) as outcome
variables, and incorporates the initial high-tech firm density in 2009 as a covariate, aiming to explore the possible link between identified
growth patterns and initial high-tech firm density. The authors found that during 2009–2014 continuous growth of the high-tech industry was
more likely to occur in locations with relatively low initial high-tech firm density. As firm density rose, fewer locations could have sustaining
growth but increasingly relied on certain triggers to achieve further growth. The probability of falling into industrial decline also increased as
high-tech firm density grew. In addition, locations with relatively low high-tech firm density were more likely to experience big fluctuations.
The methodology and the findings presented in this paper are expected to contribute to industrial location choices and development studies in
similar metropolitan areas. DOI: 10.1061/(ASCE)UP.1943-5444.0000397. © 2017 American Society of Civil Engineers.

Introduction manufacturing sectors. For example, Arauzo-Carod (2005) found

The growth of the manufacturing industry has been a major topic in
regional and urban development studies for its prominent role in
economic and employment growth. In the context of the Republic
of Korea, the value added of the manufacturing sector has been
growing since 2004 (Fig. 1), with a noticeable retardation around
2009 due to the global financial crisis. The percentage share of the
manufacturing industry in the national gross value added has also
been increasing during the same period (dashed line in Fig. 1). By
2014, the value added of the manufacturing industry accounted for
more than 30% of the national gross value added. The growth of the
manufacturing industry plays a pivotal role in the prosperity of the
economy. In addition, within the manufacturing industry, the heavy,
light, and high-tech sectors present different growth patterns
(Fig. 2). The high-tech manufacturing sector (electronic, electrical
equipment, and precision instruments) has been growing at a faster
rate than other manufacturing sectors, which highlights the ongoing
transition to a knowledge-based economy in Korea since the 1990s.
In 2014, the high-tech manufacturing sector accounted for about
one-third of the total value added of the manufacturing industry
as a whole.
To articulate industrial growth, more information and dimen-
sionalities need to be taken into consideration apart from the ag-
gregate growth curve as in Fig. 1. First, the industrial growth
and the associated locational mechanism are likely to vary across
1
Research Associate, Dept. of Architecture, Univ. of Cambridge,
Trumpington St., Cambridge CB2 1PX, U.K. (corresponding author).
ORCID: https://orcid.org/0000-0002-7863-0729. E-mail: lw423@cam.ac.uk
2
Research Professor, Dept. of Urban Design and Planning, Univ. of
Seoul, Seoul 02504, Korea. E-mail: ysan@uos.ac.kr
Note. This manuscript was submitted on December 8, 2016; approved
on April 5, 2017; published online on June 30, 2017. Discussion period
open until November 30, 2017; separate discussions must be submitted
for individual papers. This paper is part of the Journal of Urban Planning
and Development, © ASCE, ISSN 0733-9488.
that the labor-intensive sector (e.g., heavy industry) and the re-
search and development intensive sector (e.g., high-tech industry)
follow different mechanisms in industrial location choices. Second,
to understand the changes in local industry over time, an explicit
temporal dimension is required, rather than merely the start and end
status. For example, some locations may see a linear growth pat-
tern, whereas some others may experience leap-frog growth or fluc-
tuations. These growth trajectories per se are informative in the
sense that they may represent different mechanisms of growth.
Such growth patterns are well captured by the geometric curve
of the growth trajectory (Gold 1964), which provides a useful per-
spective to examine growth over time and compare growth patterns
among locations.
The purpose of this paper is to identify the growth patterns of the
high-tech manufacturing industry across locations in the Seoul met-
ropolitan area (SMA), using longitudinal firm registration data
from 2009 to 2014. The SMA was chosen as the study area because
of its dominant role in the national economy—the value added of
SMA manufacturing industry accounted for 49.4% of the national
gross in 2014 (KOSIS 2016). In this paper the authors focus on the
high-tech manufacturing sector, rather than taking the manufactur-
ing sectors as a whole. This is to acknowledge the fact that sectors
tend to follow different mechanisms of growth. To identify growth
patterns, latent class growth models were developed following a
data-driven, explorative approach. Latent class growth analysis
is a particular type of latent class analysis (LCA) that deals with
longitudinal data. It uses outcome variables measured at multiple
time points to define a latent class model in which the latent classes
correspond to different growth curve shapes for the outcome
variables (Muthén and Muthén 2000). Whereas LCA is a well-
established research method in social and behavioral science
(Clogg 1995), it has rarely be applied in urban development studies.
This paper is organized as follows. The research on industrial
growth patterns and the methodology of latent variable analysis are
reviewed in the next section. This is followed by the introduction of

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Fig. 1. Value added of manufacturing industry in Republic of Korea
(data from KOSIS 2010)
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Fig. 2. Value added by manufacturing sector in Republic of Korea
(data from KOSIS 2010)
the empirical data with descriptive statistics. In the “Method” sec-
tion, the research problems and the analytical procedure are pre-
sented. Model estimation and selection are discussed next. The
research findings are drawn in the “Discussion” section. The “Con-
clusion” section summarizes the paper; limitations are also pointed
out in this section.
Literature Review
In this section, the literature on industrial growth patterns and the
methodological background of latent variable analysis are reviewed
in turn.
Industrial Growth Patterns
The search for industrial growth patterns stems from the early work
of Burns (1934), who studied the varying rates of growth of several
American industries, aiming to find uniformity in growth pattern.
Burns proposed a basic generalization with respect to industrial
growth that “an industry tends to grow at a declining rate, its rise
being eventually followed by a decline,” based on a study of lon-
gitudinal industrial growth data (1870–1885) in the United States.
This seminal research topic was revisited by Gold (1964) 30 years
later, who reviewed Burns’ work with updated empirical evidence
and reiterated the significance of investigating industrial growth
patterns. Gold (1964) explored the geometric features of industrial
growth patterns during 1929 and the 1950s in the United States and
found that progressive retardation may be far less pervasive and
undiminished rates of growth may be more frequent than had been
suggested by Burns. He also proposed that the uniformity of growth
patterns is unlikely to exist across industries. This research strand
differs from the econometric approach in that it directly examines
industrial growth patterns in a geometrical manner. However,
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existing research often uses aggregate data at the national or
regional level, at which spatial heterogeneity is not a key point
of interest.
Another line of research exploring industrial growth is through
modeling firm location choices. This research line incorporates the
explicit spatial dimension in the sense that the study area is often
divided into zones as units of analysis. Arauzo-Carod et al. (2010)
provide a thorough overview of the methodology and determinants
of industrial location. They found that agglomeration economies
are generally accepted as an important determinant for industrial
location. The term agglomeration economies denotes that the spa-
tial proximity of firms would lead to positive externalities that may
boost productivity and promote further concentration (Fujita et al.
2001; Glaeser 1999; Marshall 1890). When agglomeration reaches
a cerntain threshold, diseconomies may also arise that deter further
concentration. In firm location models, the level of agglomeration
is usually measured by the density of firms within a given geo-
graphic area. The research on industrial locations, though often us-
ing longitudinal data to enlarge the sample size, tends to focus only
on the start and end status of the study period (i.e., the net changes
between two cross sections). Growth patterns and interrelations
over time are often neglected.
Latent Variable Analysis
In statistics, latent variables, as opposed to observed variables, are
variables that are not directly observed but can be inferred from
observed variables (indicators). Various methods are developed
under the framework of latent variable analysis, with respect to
the type of latent variables and indicators (categorical or continu-
ous), the temporal characteristics of indicators (cross sectional or
longitudinal), and the model assumptions for classification. An ex-
tensive overview on the methodological variations of latent variable
analysis is provided in Muthén (2001). In this section, the differ-
ence between latent class analysis and factor analysis is discussed
first. This is followed by a brief introduction of the standard latent
class model and its extensions. Considerations for model estimation
and selection are discussed afterward.
Latent class analysis was introduced by Lazarsfeld and Henry
(1968), and it was extended by Goodman (1974) and Clogg (1995).
The standard LCA is intended to identify unobserved class mem-
bership among sample objects. There is a similarity between LCA
and the nonhierarchical factor analysis using continuous latent
variables, because the two methods both find classes (clusters)
of samples that are similar in terms of means, variances, and co-
variances. However, the key difference lies in the fact that in factor
analysis the cluster-membership probability is directly estimated
through the maximum log-likelihood method, which typically max-
imizes cross-cluster variation or minimizes within-cluster variation,
whereas in LCA the posterior class-membership probability is
derived with estimated class-specific parameters. In other words,
the LCA can classify observed samples in a probabilistic fashion,
and thus it can be used to derive other conditional probabilities
(Vermunt and Magidson 2002).
Latent class growth analysis (LCGA) is an extension of LCA
that deals with longitudinal data for identifying distinctive groups
of individual growth trajectories (Nagin 1999; Nagin and Land
1993). For a linear-type LCGA, a set of intercepts and slopes,
namely, growth factors, are devised to measure growth trajectories,
in which the intercepts represent the time-invariant variance
(e.g., initial status) and the slopes depict the time-varying growth
pattern (e.g., the amount of change over time). In LCGA, it is gen-
erally assumed that no variation across individuals is allowed
within classes, though growth factors can change over classes,
J. Urban Plann. Dev.
 representing different growth patterns among classes. The LCGA is
also called growth curve analysis when continuous indicators are
applied. This section follows the variable definitions in Muthén
(2001) and introduces the generic formulation of LCGA. The
observed variables are x and y, where x denotes a vector of cova-
riates and y denotes a vector of continuous outcome variables
(indicators). In this paper, all observed variables are continuous;
thus, no categorical indicators are considered. The latent variables
are η denoting a vector of continuous latent variables, and c rep-
resenting a latent categorical variable with K classes, c ¼
ðc1 ; c2 ; : : : ; cK Þ. Finally, t ¼ 0 to T denotes the time of measure-
ment for observed variables. The generic formulation is thus
given by
X
K of classes to establish a stable GMM application. Other useful in-
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yti ¼ ½Pic ðη0ic At0ic þ η1ic At1ic þ etic Þ
c¼1
where Pic = probability that the sample i belongs to class c with
P (1) determination of the number of classes and (2) comparison
c Pic ¼ 1; η 0ic and η 1ic = continuous latent variables to be
estimated that are time-invariant; At0ic and At1ic = intercepts and
the slopes, respectively, that together measure the growth pattern
over time; and etic ∼ Nð0; Ψk Þ = time-variant residual term, as-
sumed to be uncorrelated with other variables.
To interpret the model parameters and variables relating to the
geometric pattern of growth curves, the authors follow Ram and
Grimm (2009). For the growth factors, At0ic is usually assumed
to be constant (At0ic ¼ 1) to represent the influence of initial status
over the growth trajectory. The term At1ic captures the pattern of
changes over time, which can be specified a priori (e.g., linear,
quadratic) or estimated from the data together with the latent
variables. The free elements of At1ic , when not predetermined, re-
present a distinctive, class-specific pattern of growth that best fits
the data.
As a further generalization of LCGA, growth mixture modeling
(GMM) allows within-class variation in determining the trajectory
classes. Nonetheless, when building a GMM model, it is useful to
start from the standard LCGA, because the zero constraints on class
variance could significanly reduce computing time and result in
faster model convergence (Kreuter and Muthén 2007). The ex-
tended flexibility of GMM makes it a useful tool to explore data
of various kinds when a prioir knowledge on the latent trajectory
classes is not well established. In this paper, the GMM mehod is
adopted to identify the generic growth patterns of the high-tech
manufacturing industry in the Seoul metropolitan area.
Another merit of latent class analysis is its capability of incor-
porating covariates (concomitant variables). A formal proposal of
LCA with covariates was presented in Clogg (1981), although he
used the term external variables instead of covariate. The key idea
of incorporating covariates in LCA is to distinguish endogenous
variables that serve as indicators from external variables that
may be used to predict class membership. In this paper, the incor-
poration of covariates means that not only generic industrial growth
patterns can be identified, but also that the possible connections
between the identified patterns and the selected covariate can be
explored. The introduction of covariates thus facilitates the inter-
pretation of model results and implies causalities for further inves-
tigation. The technical descriptions of the LCA with covariates
can be found in Vermunt and Magidson (2002) and Muthén and
Asparouhov (2011).
Model Estimation and Selection
The latent class models can be estimated through maximum
likelihood using an expectation maximization (EM) algorithm.
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J. Urban Plann. Dev., 2017, 143(3): 04017011
The quality of model fitting can be evaluated based on the precision
of classification and the entropy measure. In terms of model con-
vergence, local optima and multiple maxima (Titterington et al.
1985) are often encountered in the estimation, particularly in mod-
els with a large degree of across-class variations such as in GMM
applications. One general method to tackle local solutions is to es-
timate the model with random starting values to find the solution
with the highest log likelihood value. Such a searching algorithm
has been automated in most software packages, such as Mplus. For
GMM particularly, Ram and Grimm (2009) use a four-step method
to demonstrate that the GMM building should start from linear,
parameter-restricted models such as standard LCGA, and then
gradually relax the variance constraints and increase the number
structions for applying GMM can be found in Jung and Wickrama
(2008) and Wang and Hanges (2011).
The model selection involves two important considerations:
of models of different specifications given the number of classes.
An overview of this topic can be found in Celeux et al. (1997). It
should be noted that the conventional chi-squared tests can only be
used to compare two latent class models that have an identical num-
ber of classes, but not models with different class numbers. Instead,
the Akaike information criterion (AIC) (Akaike 1973) and the
Bayesian information criteria (BIC) (Schwarz 1978) have been
put forward for performance-testing purposes; both include a pen-
alty term for the number of parameters in the model (the penalty
term is larger in BIC than in AIC). A low AIC/BIC value indicates a
better-fitting model. Another index for model selection is the
Lo-Mendell-Rubin (LMR) likelihood ratio test (Lo et al. 2001),
in which the likelihood ratio statistic for a k-class model is related
to the neighboring k − 1 class model. However, Jeffries (2003)
found that there is a flaw in the mathematical proof of the LMR
test for normal outcomes. The LMR test results thus need to be
interpreted with caution. Alternatively, McLachlan and Peel (2000)
proposed a parametric bootstrap likelihood ratio test (BLRT),
which does not require the a priori distribution type for the like-
lihood difference between the k − 1 and k class model, and uses
bootstrap samples to estimate the distribution. Nylund et al. (2007)
empirically compared several model fit indices (BLRT, BIC, LMR,
etc.), and found that the BLRT outperforms the others, followed by
the BIC and the adjusted BIC, albeit with the extra computation
burden incurred by the bootstrapping procedure.
Given the aforementioned fit statistics for model selection, as a
summary note, Muthén (2003) pointed out that latent class models
should be amenable to both statistical and substantive checking.
Latent class models should not only be statistically sound, but also
conform to relevant theory. They can be useful for practical
purposes.
Data
Geography
The spatial scope of this study is the Seoul metropolitan area of
the Republic of Korea. The SMA had a population of 48 million
in 2010, covering a land area of 12,056 km2 . The SMA includes
three major cities, Seoul, Incheon, and Gyeonggi-do. Seoul-
Incheon is one of the largest urban metropolitan areas in the world
(Cox 2016). In terms of firm and employment, SMA is home to
47.1% of the total firms and 51.7% of the total employment in
Korea (KOSIS 2016).
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Fig. 3. Study area: Seoul metropolitan area (SMA) in Republic of Korea

To define the spatial unit for this analysis, the SMA was divided
into 79 zones, which are in line with administrative divisions. The
descriptive statistics (the minimum, maximum and standard
deviation) of the zoning system are provided in Fig. 3, which shows
that the SMA zones vary considerably in terms of geographic area.
Descriptive Statistics
The firm data for this research came from the annual Business
Yearbook published by the Korean Chamber of Commerce and
Industry (KCCI). The purchased data include firm-level registration
records (such as firm name, industrial type, address, employment
size, etc.) from 2009 to 2014. Specifically, this paper focuses on
high-tech manufacturing firms. The firm-level count data were
aggregated according to the zoning system. The outcome was a
longitudinal data set of the zonal number of high-tech manufactur-
ing firms from 2009 to 2014. The descriptive statistics of the high-
tech firm count data in SMA are presented in Table 1.
The total number of high-tech manufacturing firms in SMA
has grown continuously since 2009. A particularly fast period of
growth was seen during 2011–2012, which might signify a recov-
ering bounce from the global financial crisis in 2008. In addition,
the standard deviation (SD) of firm numbers also increased from
2009 to 2012 and has remained stable since 2013. It suggests that
the development gap among locations has been widening during
2009–2012.
The potential bias caused by the uneven size of zones should
be addressed before conducting the latent class analysis. This is
because large zones tend to have more firms as well as growth.
To correct such bias, firm density (number of firms per square
kilometer) is used instead of absolute counts for the following
analyses. The density distribution of high-tech firms in SMA is
presented in Fig. 4. The zones were reordered according to their
density ranking in 2009. It shows that the relative ranking of firm
density changes over time, but the general distribution pattern re-
tains. Locations of high firm density tend to have higher absolute
growth, whereas the middle range shows more dynamic growth
patterns.
Method
Problem Definition
Given the empirical nature of this paper, defining the research
problems was a key step in developing an appropriate analytical
plan. The authors defined the research problems as (1) how many
latent groups of growth patterns are expected that are amenable to
both statistical and substantive checking, (2) how these groups dif-
fer from each other, and (3) how to explore the link between the
predicted group membership with the initial high-tech firm density
(covariate).

Table 1. Descriptive Statistics of High-Tech Firm Count Data in SMA

Variable 2009 2010 2011 2012 2013 2014
Minimum 0 0 0 0 1 1
Maximum 1,668 1,678 2,014 2,737 2,614 2,533
Mean 234 243 259 290 301 308
Standard deviation 303.7 310.6 342.3 413.3 413.4 410.5
Sum 18,490 19,176 20,441 22,890 23,783 24,336
Percentage growtha — 3.7 6.6 12.0 3.9 2.3
a
Percentage growth based on the previous year.

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Fig. 4. Distribution of high-tech firm density in SMA (2009–2014)
Data-Guided Approach
To design the procedure of latent class analysis, a data-guided
approach was adopted by investigating the data and postulating
the underlying structure. The growth trajectories of high-tech firms
in SMA are plotted in Fig. 5(a), in which each line depicts the
change of high-tech firm density at a certain location during
2009–2014. A considerable level of variance is shown across
locations. Specifically, the amount of changes over time was rela-
tively small for locations with low initial high-tech firm density in
Fig. 5. (a) High-tech firm density growth trajectories in SMA 2009–2014; (b) high-tech firm density growth trajectories in SMA 2009–2014 by
standard deviation unit
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2009, depicted by the flat lines on the figure bottom. By contrast,
relatively large changes were witnessed for locations with
higher initial firm density. One location, Geumcheon District in
Seoul [see the top line in Fig. 5(a)], presented a distinct growth
trajectory—it remained the most concentrated location of high-
tech firms in SMA throughout the study period. Along the trajec-
tory, noticeable growth was witnessed during 2011–2012. The
authors investigated the possible cause for this quick growth and
found that it probably relates to a 2011 industrial regeneration
scheme in Seoul that aimed to transform obsolete factories into
modern industry parks.
To focus on growth patterns, the density growth trajectories
have been standardized [Fig. 5(b)]. The standardization procedure
endows zero-mean growth trajectories for all locations, which rules
out the influence of initial firm density. The geometric pattern thus
becomes the key point of interest. In Fig. 5(b), an upward growing
trend can be visually identified, in which a faster growing stage is
seen between 2011 and 2012. This trend is in line with the overall
growth of high-tech firms in SMA (Table 1). However, significant
variations were also revealed across locations, which calls for fur-
ther investigation using latent class models.
Based on the empirical investigations, two major factors were
identified that contribute to the compound variance observed in the
industrial growth data: (1) the initial high-tech firm density (cross
sectional) and (2) the pattern of growth trajectory (longitudinal).
The authors’ postulation was that latent classes exist for each factor,
and such latent classes are correlated in the sense that the initial
firm-density measure may serve as the covariate for determining
the class membership of growth patterns. The analytical procedures
are summarized in Table 2.
The authors started from a baseline single-group growth model,
in which an average growth pattern was estimated for all locations.
The purpose of this step was to examine the data using model tools
and obtain benchmark fit statistics that could be used to evaluate
J. Urban Plann. Dev.
 Table 2. Procedure of Latent Class Analysis
Step Data input
1: Establish a baseline single-group growth model Standardized density growth data (longitudinal)
2: Establish growth mixture models of varying number of classes to identify growth Standardized density growth data (longitudinal)
trajectory patterns
3: Establish latent class model to identify classes based on firm density measure Firm density measure (cross sectional)
4: Expand selected growth mixture model from Step 2 by incorporating Standardized density growth data (longitudinal) and firm
the density measure as a covariate density measure (cross sectional)

Table 3. Fit Statistics of Latent Class Models for High-Tech Firm Growth Patterns in SMA
Number of classes
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Index 1 2 3 4 5 6 7
Log likelihood (LL) −460.42 −374.22 −337.61 −311.84 −293.55 −274.53 −261.08
Akaike (AIC) 944.84 786.44 727.21 689.68 667.11 643.07 630.17
Bayesian (BIC) 973.27 831.46 788.82 767.87 761.88 754.43 758.12
Sample-size adjusted BIC 935.43 771.55 706.84 663.82 635.76 606.24 587.85
Bootstrapped likelihood ratio test
Approximate P-value — 0.0000 0.0000 0.0000 0.0000 0.0128 0.1923

subsequent models. Step 2 aimed to identify the generic growth Table 4. Class Count of Latent Class Growth Models
patterns of high-tech firms in SMA during the study period, using Number of classes in latent model
standardized firm-density trajectories. Step 3 sought to divide the Member count
locations into groups according to their high-tech firm density in in each class 1 2 3 4 5 6 7
2009 and 2014. As opposed to the density trajectories in Step 2, Class A 79 73 67 35 35 32 32
actual firm-density measures were used in this step. Step 3 thus Class B — 6 6 6 5 5 5
complemented Step 2 and provided a cross-sectional analysis of Class C — — 6 4 4 5 4
firm-density distribution among locations. Finally, Step 4 inte- Class D — — — 34 34 33 32
Class E — — — — 1 1 1
grated the findings of Steps 2 and 3, using firm density in 2009
Class F — — — — — 3 3
as the covariate to predict the membership probability of different Class G — — — — — — 2
growth trajectory classes. Firm density was chosen as the covariate Total 79 79 79 79 79 79 79
because it explicitly represents the level of industrial agglomera-
tion. Other locational factors such as labor education level and
transport accessibility are also plausible options for the covariate
in further studies. Overall, this data-guided approach was devised represented the same growth pattern across models. Class B is first
from the authors’ empirical investigation and complies with the revealed by the 2-class model, and the class count remains stable
common practice of establishing growth mixture models. (5–6 locations) as the class number increases. Class C is then iden-
tified by the 3-class model as a separated set from Class A, and
the class count remains stable (4–6 locations). Class D is extracted
Model Estimation and Selection from Class A by the 4-class model, which includes about 32 loca-
tions. As the number of classes keeps increasing, Classes E, F,
Models in this paper were developed using the Mplus software. and G are identified but the class count is generally small (fewer
Mplus uses maximum-likelihood with the EM algorithm, estimat- than three locations), implying that the new classes are essentially
ing the posterior probability of class membership with a given num- regression outliers extracted from existing classes.
ber of classes. More technical details regarding the EM algorithm in To understand the classification of growth patterns, the seven
Mplus can be found in Muthén and Shedden (1999). In this section, identified growth patterns are plotted in Fig. 6. Class A represents
the results of model estimation are presented first; the selection a continuous growth pattern from 2009 to 2014, with increased
process is then discussed. growth speed (slope) during 2010–2011. Locations in this class
The model fit statistics for the single-class model and a series of exhibit strong growth-sustaining power that may well stem from
multiclass models with an incremental number of classes are pro- agglomeration economies. Class B represents a declining pattern.
vided in Table 3. Compared with the single-group model, signifi- Significant loss of high-tech firms was seen in these locations dur-
cant improvement in model performance was witnessed for the ing 2009–2010, followed by another steep decline between 2011
2-class model. The change of AIC, BIC, and log-likelihood (LL) and 2012. Locations in Class C feature faster growth during
all imply better model classification as the number of classes in- 2009–2010, fluctuations until 2013 and a declining trend by
creased from 2 to 6. The P-value from the BLRT also shows that 2014. Class D shows a different type of growth trajectory, in which
the model improved continuously from 2 classes to 6 classes, and fast growth is triggered in 2011 after initial sluggish growth, and
rejects the 7-class model against the 6-class model. growth continues until the end of the study period. The quick
Given the aforementioned fit statistics, the authors checked the growth during 2011–2012 is likely attributed to the 2011 industrial
member count of each class for the multiclass models (Table 4). For regeneration scheme implemented in Seoul. The local high-tech in-
comparison purposes, the classes were ordered such that each class dustry in Class E experienced a dramatic V-shape shock during

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Fig. 6. Identified growth patterns of the 7-class model
2009–2011. A large fluctuation was also witnessed in Class F, but
Class F differs from Class E in that locations in Class F ended up
with a firm-density level higher than that of 2009. Class G revealed
in the 7-class model also shows a constantly fluctuating pattern.
Nonetheless, if an average trajectory of Class G is derived through
linear interpolation, the interpolated trajectory shows a linear
growth trend that is similar to that of Class A.
Given the aforementioned statistic and substantive check, the
6-class model was selected for the following reasons. First, the
6-class model has the lowest BIC value and a low BLRT P-value
(0.0128) that rejects the 5-class model. Second, the 7-class model is
rejected by the high BLRT P-value (0.1923). Third, in latent class
analysis, classes with small counts usually need to be approached
with caution. However, given the distinctive pattern of Classes E
and F, the authors deemed that these locations should be extracted
as new classes. These minor classes reflect the heterogeneity of
high-tech firm growth in SMA.
The next step (Step 3) was to estimate the latent class model
using high-tech firm density as indicators. A similar model selec-
tion method was applied as discussed previously. The selected
model divides the locations in SMA into three classes according
Fig. 7. Scatter plot of high-tech firm density in SMA by class
membership
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J. Urban Plann. Dev., 2017, 143(3): 04017011
to their high-tech firm density in 2009 and 2014 (two cross
sections). Results are presented through a scatter plot in Fig. 7.
From the scatter plot, a good linear correlation was found be-
tween high-tech firm density in 2009 and 2014. It implies that the
aggregate density distribution holds between the two static years.
Class 1 has only one member, Geumcheon-gu, which had an out-
standing high-tech firm density in 2009 (averaging 74.7 firms per
square kilometer) and remained the top in 2016. Class 2 represents
71 locations that have relatively low firm density (averaging 3.4
firms per square kilometer in 2009). Class 3 includes seven loca-
tions, representing a medium level of high-tech firm density in
SMA (averaging 27.4 firms per square kilometer in 2009).
The final step (Step 4) of the latent class analysis was to extend
the 6-class model in Step 2 by introducing the 2009 high-tech firm
density as a covariate. The final growth mixture model with the
covariate will link the posterior probability of class membership
to the initial firm density in 2009. The growth pattern classification
is presented in Fig. 8. The six growth patterns are in line with the
model estimations in Step 2, implying stability of the model.
The authors further present the probability and count statistics of
model estimation in Table 5. In terms of class count, one location
previously in Class A moved to Class D, and the rest of the counts
remained unchanged. The posterior probability of class member-
ship shows that the model predictions for Classes A–E are all
higher than the 95% level of accuracy. The prediction for Class
F is 95.5%, with another 4.4% probability of its members belong-
ing to Class A. Overall, the authors deemed that the extended
model with the covariate retains the features of the original model
without the covariate.
Discussion
For the final model with the covariate, Fig. 9 further illustrates the
probability of class membership as a function of the covariate. For
any given firm-density value, the sum of membership probabilities
for all classes equals one. The authors also made use of the latent
class model developed in Step 2 and categorized the locations ac-
cording to their initial high-tech firm density in 2009 (see the three
vertical lines in Fig. 9). The three lines represent the average firm
density of the low (3.4=km2 ), middle (27.4=km2 ), and high
(74.7=km2 ) firm-density classes, respectively, which were derived
in Step 3. Here four findings are summarized.
First, for locations with low high-tech firm density in 2009, the
probability of following either the Class A or D type of growth is
about 79%, with a higher probability of being Class A (47%) than
Class D (32%). Recall that Class A features strong self-sustaining
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Fig. 8. Identified growth patterns of the 6-class model with covariate

Table 5. Classification Probability of Latent Class Membership by Latent Class and Class Count
Class Class A (%) Class B (%) Class C (%) Class D (%) Class E (%) Class F (%) Sum (%) Count
Class A 98.0 0.0 0.1 1.9 0.0 0.0 100.0 31
Class B 0.0 100.0 0.0 0.0 0.0 0.0 100.0 5
Class C 0.5 0.0 99.5 0.0 0.0 0.0 100.0 5
Class D 3.3 0.0 0.0 96.7 0.0 0.0 100.0 34
Class E 0.0 0.0 0.0 0.0 100.0 0.0 100.0 1
Class F 4.4 0.0 0.0 0.1 0.0 95.5 100.0 3

growth in which no significant decline is detected over the study
period, whereas Class D represents a growth pattern that requires
certain triggers to achieve further growth (Fig. 8). This finding sug-
gests that for locations with low high-tech firm density, 47% of
them tend to see continuous growth for a period up to the length
of the study period, subject to the macro economy. However, this
probability decreases quickly as the initial density rises, such that
locations with middle and high firm density are unlikely to follow
the self-sustaining growth of Class A. This may imply the turning
point from agglomeration economies to diseconomies. In fact,
when initial firm density approaches around 30=km2 in 2009,
Fig. 9. Probability of class membership as a function of covariate
the probability of being Class A drops to less than 5% (1% when
firm density increases to 44=km2 ).
Second, as the initial firm density rises to the middle range,
the probability of being Classes D and B increases. As the initial
density approaches the middle-range threshold (27.4=km2 ), the
probability of being Class D rises to more than 70%, suggesting
that for most of the middle-range locations, further growth of
the high-tech industry relies on certain triggers, most likely policy
triggers in the context of SMA. Without the incentives, the self-
sustaining growth of the local high-tech industry can hardly go
beyond the middle range.
Third, as the initial high-tech firm density keeps increasing, the
probability of being Class D encounters a tipping point and turns to
decline. It implies that for locations with upper-middle to high firm
density in 2009, the probability of actually achieving the triggered
growth is dropping. Meanwhile, the probability of being Class B
(industrial declining) continues to grow. In fact the monotonic
probability curve of Class B suggests that locations with higher
initial firm density are more likely to suffer industrial regression.
Last, Classes E and F feature significant fluctuations (in relative
terms) over time. This study shows that such growth patterns only
happen in locations with very low initial firm density. For locations
with initial firm density greater than 10 firms per square kilometer
in 2009, the Class E and F type of industrial growth is much less
likely to occur. In addition, the probability of being Class C (stag-
nation after big early growth) remains relatively stable across the
initial density range, albeit with the lower-middle locations having
a slightly higher probability.
To understand the spatial heterogeneity of high-tech industry
growth, the authors examined the geographic distribution of the
identified growth patterns in SMA, together with the mapping
of high-tech firm density in 2009 [Figs. 10(a and b)]. It showed
that the Class D locations were mostly located in Seoul and the
west coast, which were built-up areas with notable high-tech indus-
trial establishments in 2009. By contrast, the Class A locations
were generally outside the Seoul city, featuring relatively low

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J. Urban Plann. Dev., 2017, 143(3): 04017011

Downloaded from ascelibrary.org by University of Seoul on 05/30/18. Copyright ASCE. For personal use only; all rights reserved.
Fig. 10. (a) The geographic distribution of 6 identified classes in SMA; (b) high-tech firm density in 2009 (covariate) in SMA
high-tech firm density. The locations of other classes were gener-
ally dispersed with no significant spatial autocorrelation detected.
As a final caveat, it should be noted that the latent class models
estimated in this paper are essentially period specific. This is be-
cause the growth trajectory data, though standardized, are period
specific by nature. The covariate vector (high-tech firm density
in 2009) is also a static measure that will change over time. In ad-
dition, the length of the study period for pattern recognition is a key
boundary condition. For example, if the study period were short-
ened to two years (2009–2011), Class D in the final model would
represent a stagnated pattern, rather than the triggered-growth pat-
tern. In the extreme case of investigating growth on a yearly basis,
the growth trajectory simply becomes not available. The authors
thus argue that for pattern recognition purposes, the growth trajec-
tories should be examined over a relatively long period, subject to
data availability. Given the overall incremental growth of high-tech
industry in SMA, the authors deem that the five-year study period
(2009–2014) represents a reasonable length for generalizing the
aggregate growth patterns of high-tech industry in SMA.
Conclusion
This paper makes use of the firm registration data in the Seoul
metropolitan area to identify the generic growth patterns of the
high-tech manufacturing industry through latent class analysis.
The research also investigates the possible link between identified
growth patterns and initial firm density. Latent class analysis is a
well-established research method in the field of behavioral science,
but it has rarely been applied in urban studies. This paper provides
an empirical example of using latent class analysis to identify in-
dustrial growth patterns among locations with longitudinal firm
count data. The application of the latent class analysis in the urban
field may provide new insights on understanding industrial growth
within a cluster of interconnected locations and the possible role of
© ASCE 04017011-9
J. Urban Plann. Dev., 2017, 143(3): 04017011
policies at different stages of industry development. The authors
expect that the methodology and the findings of this paper will con-
tribute to industrial location choices and policy studies in similar
metropolitan areas.
The analysis follows a data-driven explorative approach. To
focus on the growth pattern, the standardized firm-density data
between 2009 and 2014 were used to conduct the latent class analy-
sis. A series of multiclass latent models were estimated with incre-
mental numbers of classes. The model selection involved both
statistical and substantive checks, as recommended in existing lit-
erature. For firm-density growth patterns, six distinctive classes of
industry growth trajectories were identified. The authors also de-
veloped a 3-class model that divides all SMA locations into three
groups according to their high-tech firm density in 2009 and 2014.
The separation of the two latent models (for growth patterns and for
firm density) is supported by the authors’ investigation of the data.
The final model incorporates the initial high-tech firm density in
2009 as a continuous covariate.
The research found that locations with relatively low firm den-
sity tended to have continuous growth (Class A) for the local high-
tech industry in SMA during 2009–2014. As the initial firm density
rose, the probability of being Class A dropped significantly; in-
stead, locations were more likely to follow the triggered-growth
pattern (Class D) or encounter industrial regression (Class B).
As the initial density approached the middle-range threshold
(27.4=km2 in 2009), the probability of being Class D rose to more
than 70%, suggesting that for most of the middle-range locations,
further growth of the high-tech industry would increasingly rely on
certain triggers. The research also found that the probability of
being Class D encounters a tipping point and turns to decline. It
implies that for locations with upper-middle to high firm density
in 2009, the probability of actually achieving the triggered growth
is dropping; meanwhile the probability of being Class B (industrial
declining) is increasing. As a final caveat, the model estimations
presented are essentially period specific. The authors argue that
J. Urban Plann. Dev.
 for pattern recognition purposes, the growth trajectories should be
examined over a relatively long period subject to data availability.
The long study period would improve the temporal generality of the
identified growth patterns.
In terms of the limitations of the paper and the directions for
further study, first, the temporal generality of the identified growth
patterns are not empirically verified. Extra data input is required to
enable the test. If verified, the possible transitions between and the
combinations of generic patterns can be explored. Second, given
the identified growth patterns, the underlying causality for each
pattern has not been broached. Such causality can be investigated
by linking the growth pattern with observed location-specific
attributes and policy variables. Third, the agglomeration thresholds
(measured by firm density in this paper) for enabling self-
Downloaded from ascelibrary.org by University of Seoul on 05/30/18. Copyright ASCE. For personal use only; all rights reserved.
sustaining growth promise to be an interesting topic that may in-
form policy making. Whether such agglomeration thresholds vary
across world cities is another empirical question to be investigated.
Acknowledgments
This work was supported by the National Research Foundation of
Korea Grant (NRF-2015R1A2A2A04005886, 2017R1A2B4003949).
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