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Identifying Agglomeration Spillovers: Evidence from Million Dollar Plants

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Michael Greenstone
Richard Hornbeck
Enrico Moretti

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Abstract

We quantify agglomeration spillovers by estimating the impact of the opening of a large new manufacturing plant on the total factor productivity (TFP) of incumbent plants in the same county. Articles in the corporate real estate journal Site Selection reveal the county where the "Million Dollar Plant" ultimately chose to locate (the "winning county"), as well as the one or two runner-up counties (the "losing counties"). The incumbent plants in the losing counties are used as a counterfactual for the TFP of incumbent plants in winning counties in the absence of the plant opening. Incumbent plants in winning and losing counties have economically and statistically similar trends in TFP in the 7 years before the opening, which supports the validity of the identifying assumption. After the new plant opening, incumbent plants in winning counties experience a sharp relative increase in TFP. Five years after the opening, TFP of incumbent plants in winning counties is 12% higher than TFP of incumbent plants in losing counties. Consistent with some theories of agglomeration, this effect is larger for incumbent plants that share similar labor and technology pools with the new plant. We also find evidence of a relative increase in skill-adjusted labor costs in winning counties, indicating that the ultimate effect on profits is smaller than the direct increase in productivity.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 13833.

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Date of creation: Mar 2008
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Handle: RePEc:nbr:nberwo:13833

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J0 - Labor and Demographic Economics - - General
R0 - Urban, Rural, and Regional Economics - - General

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  1. Machikita, Tomohiro & Ueki, Yasushi, 2009. "Linked versus Non-linked Firms in Innovation: The Effects of Economies of Network in Agglomeration in East Asia," IDE Discussion Papers 188, Institute of Developing Economies, Japan External Trade Organization(JETRO). [Downloadable!]
  2. Rose, Andrew K & Spiegel, Mark, 2009. "The Olympic Effect," CEPR Discussion Papers 7248, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  3. Enrico Moretti, 2008. "Real Wage Inequality," NBER Working Papers 14370, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  4. Edward L. Glaeser & William R. Kerr, 2008. "Local Industrial Conditions and Entrepreneurship: How Much of the Spatial Distribution Can We Explain?," Harvard Business School Working Papers 09-055, Harvard Business School. [Downloadable!]
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  5. William Hoyt & Christopher Jepsen & Kenneth Troske, 2009. "Business Incentives and Employment: What Incentives Work and Where?," Working Papers 2009-02, University of Kentucky, Institute for Federalism and Intergovernmental Relations. [Downloadable!]
  6. Stephen Redding, 2009. "Economic Geography: A Review of the Theoretical and Empirical Literature," CEP Discussion Papers dp0904, Centre for Economic Performance, LSE. [Downloadable!]
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  7. Chris Forman & Avi Goldfarb & Shane Greenstein, 2009. "The Internet and Local Wages: Convergence or Divergence?," NBER Working Papers 14750, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  8. Johannes Van Biesebroeck, 2008. "Bidding for Investment Projects: Smart Public Policy or Corporate Welfare?," Working Papers tecipa-344, University of Toronto, Department of Economics. [Downloadable!]
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