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A Flexible Test for Agglomeration Economies in Two U.S. Manufacturing Industries

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  • Edward Feser
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    Abstract

    This paper uses the inverse input demand function framework of Kim (1992) to test for economies of industry and urban size in two U.S. manufacturing sectors of differing technology intensity: farm and garden machinery (SIC 352) and measuring and controlling devices (SIC 382). The inverse input demand framework permits the estimation of the production function jointly with a set of cost shares without the imposition of prior economic restrictions. Tests using plant-level data suggest the presence of population scale (urbanization) economies in the moderate- to low-technology farm and garden machinery sector and industry scale (localization) economies in the higher technology measuring and controlling devices sector. The efficiency and generality of the inverse input demand approach are particularly appropriate for micro-level studies of agglomeration economies where prior assumptions regarding homogeneity and homotheticity are less appropriate.

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    File URL: ftp://ftp2.census.gov/ces/wp/2004/CES-WP-04-14.pdf
    File Function: First version, 2004
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    Bibliographic Info

    Paper provided by Center for Economic Studies, U.S. Census Bureau in its series Working Papers with number 04-14.

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    Length: 32 pages
    Date of creation: Aug 2004
    Date of revision:
    Handle: RePEc:cen:wpaper:04-14

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    1. Antonio Ciccone & Robert E. Hall, 1995. "Productivity and the density of economic activity," Economics Working Papers, Department of Economics and Business, Universitat Pompeu Fabra 120, Department of Economics and Business, Universitat Pompeu Fabra.
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    3. Moomaw, Ronald L., 1985. "Firm location and city size: Reduced productivity advantages as a factor in the decline of manufacturing in urban areas," Journal of Urban Economics, Elsevier, vol. 17(1), pages 73-89, January.
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    7. Nakamura, Ryohei, 1985. "Agglomeration economies in urban manufacturing industries: A case of Japanese cities," Journal of Urban Economics, Elsevier, vol. 17(1), pages 108-124, January.
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    11. Chan, M W Luke & Mountain, Dean C, 1983. "Economies of Scale and the Tornqvist Discrete Measure of Productivity Growth," The Review of Economics and Statistics, MIT Press, vol. 65(4), pages 663-67, November.
    12. Byong-Hyong Bahk & Michael Gort & Richard A Wall, 1991. "Decomposing Technical Change," Working Papers, Center for Economic Studies, U.S. Census Bureau 91-4, Center for Economic Studies, U.S. Census Bureau.
    13. Sang V Nguyen & Arnold P Reznek, 1990. "Returns to Scale in Small and Large U.S. Manufacturing Establishments," Working Papers, Center for Economic Studies, U.S. Census Bureau 90-11, Center for Economic Studies, U.S. Census Bureau.
    14. Mountain, Dean C, 1986. "Economies of Scale versus Technological Change: An Aggregate Production Function for Switzerland," The Review of Economics and Statistics, MIT Press, vol. 68(4), pages 707-11, November.
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