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Economies of Density versus Natural Advantage: Crop Choice on the Back Forty

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Thomas J. Holmes
Sanghoon Lee

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Abstract

We estimate the factors determining specialization of crop choice at the level of individual fields, distinguishing between the role of natural advantage (soil characteristics) and economies of density (scale economies achieved when farmers plant neighboring fields with the same crop). Using rich geographic data from North Dakota, including new data on crop choice collected by satellite, we estimate the analog of a social interactions econometric model for the planting decisions on neighboring fields. We find that planting decisions on a field are heavily dependent on the soil characteristics of the neighboring fields. Through this relationship, we back out the structural parameters of economies of density. Setting an Ellison-Glaeser dartboard level of specialization as a benchmark, we find that of the actual level of specialization achieved beyond this benchmark, approximately two-thirds can be attributed to natural advantage and one-third to density economies.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 14704.

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Date of creation: Feb 2009
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Handle: RePEc:nbr:nberwo:14704

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Find related papers by JEL classification:
Q10 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - General
R12 - Urban, Rural, and Regional Economics - - General Regional Economics - - - Size and Spatial Distributions of Regional Economic Activity; Interregional Trade (economic geography)
R14 - Urban, Rural, and Regional Economics - - General Regional Economics - - - Land Use Patterns

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. William Kerr & Edward Glaeser & Glenn Ellison, 2007. "What Causes Industry Agglomeration? Evidence from Coagglomeration Patterns," Working Papers 07-13, Center for Economic Studies, U.S. Census Bureau. [Downloadable!]
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  2. Thomas J. Holmes, 2008. "The Diffusion of Wal-Mart and Economies of Density," NBER Working Papers 13783, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  3. Douglas W. Caves & Laurits R. Christensen & Michael W. Tretheway, 1984. "Economies of Density versus Economies of Scale: Why Trunk and Local Service Airline Costs Differ," RAND Journal of Economics, The RAND Corporation, vol. 15(4), pages 471-489, Winter. [Downloadable!] (restricted)
  4. Marcy Burchfield & Henry G. Overman & Diego Puga & Matthew A. Turner, 2006. "Causes of Sprawl: A Portrait from Space," The Quarterly Journal of Economics, MIT Press, vol. 121(2), pages 587-633, May. [Downloadable!] (restricted)
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  5. Evans, William N & Oates, Wallace E & Schwab, Robert M, 1992. "Measuring Peer Group Effects: A Study of Teenage Behavior," Journal of Political Economy, University of Chicago Press, vol. 100(5), pages 966-91, October. [Downloadable!] (restricted)
  6. Battese, George E., 1992. "Frontier production functions and technical efficiency: a survey of empirical applications in agricultural economics," Agricultural Economics, Blackwell, vol. 7(3-4), pages 185-208, October. [Downloadable!] (restricted)
  7. Glenn Ellison & Edward L. Glaeser, 1999. "The Geographic Concentration of Industry: Does Natural Advantage Explain Agglomeration?," American Economic Review, American Economic Association, vol. 89(2), pages 311-316, May. [Downloadable!] (restricted)
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  8. Rosenthal, Stuart S. & Strange, William C., 2004. "Evidence on the nature and sources of agglomeration economies," Handbook of Regional and Urban Economics, in: J. V. Henderson & J. F. Thisse (ed.), Handbook of Regional and Urban Economics, edition 1, volume 4, chapter 49, pages 2119-2171 Elsevier. [Downloadable!] (restricted)
  9. Manski, Charles F, 1993. "Identification of Endogenous Social Effects: The Reflection Problem," Review of Economic Studies, Blackwell Publishing, vol. 60(3), pages 531-42, July. [Downloadable!] (restricted)
  10. Ellison, Glenn & Glaeser, Edward L, 1997. "Geographic Concentration in U.S. Manufacturing Industries: A Dartboard Approach," Journal of Political Economy, University of Chicago Press, vol. 105(5), pages 889-927, October.
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  11. Thomas J. Holmes, 1998. "The Effect of State Policies on the Location of Manufacturing: Evidence from State Borders," Journal of Political Economy, University of Chicago Press, vol. 106(4), pages 667-705, August. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Gary D. Libecap & Dean Lueck, 2009. "The Demarcation of Land and the Role of Coordinating Institutions," NBER Working Papers 14942, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  2. Thomas J. Holmes & Sanghoon Lee, 2007. "Cities as Six-By-Six-Mile Squares: Zipf’s Law?," NBER Chapters, in: The Economics of Agglomeration National Bureau of Economic Research, Inc. [Downloadable!]
  3. Stephen Redding, 2009. "The Empirics of New Economic Geography," CEP Discussion Papers dp0925, Centre for Economic Performance, LSE. [Downloadable!]
    Other versions:
  4. Stephen Redding, 2009. "Economic Geography: A Review of the Theoretical and Empirical Literature," CEP Discussion Papers dp0904, Centre for Economic Performance, LSE. [Downloadable!]
    Other versions:
  5. Gary D. Libecap & Dean Lueck, 2009. "The Demarcation of Land and the Role of Coordinating Institutions," ICER Working Papers 14-2009, ICER - International Centre for Economic Research. [Downloadable!]
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