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Externalities and Industrial Development

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  • J. Vernon Henderson

Abstract

Using a panel data set of county-level employment in machinery, electrical machinery, primary metals, transportation, and instruments, this paper analyzes the role of dynamic externalities for individual industries. Key issues examined include the role of externalities from own industry concentration (localization, or MAR externalities) versus the role of externalities from overall diversity of the local environment (urbanization, or Jacobs externalities). In contrast to previous studies, use of panel data allows us to separate these effects out from fixed/random effects influencing industries over time. Panel data also allow us to estimate a lag structure to externality variables, indicating how long history matters and the time pattern of effects. A particular issue concerns whether conditions from the immediate year or so prior to the current have the biggest impact on current employment, or periods several years prior have the largest impact. For all industries both localization and urbanization effects are important. For traditional industries most effects die out after four or five years, but for high tech industries effects can persist longer. The biggest effects are typically from conditions of three to four years ago, in the county and metropolitan area.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 4730.

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Date of creation: May 1994
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Publication status: published as Journal of Urban Economics, Vol. 47 (1997): 449-470.
Handle: RePEc:nbr:nberwo:4730

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  1. Olivier Jean Blanchard & Lawrence F. Katz, 1992. "Regional Evolutions," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 23(1), pages 1-76.
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  9. Glaeser, Edward Ludwig & Kallal, Hedi D. & Scheinkman, Jose A. & Shleifer, Andrei, 1992. "Growth in Cities," Scholarly Articles 3451309, Harvard University Department of Economics.
  10. Abdel-Rahman Hesham M. & Fujita Masahisa, 1993. "Specialization and Diversification in a System of Cities," Journal of Urban Economics, Elsevier, vol. 33(2), pages 189-222, March.
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  14. Henderson I. Vernon, 1994. "Where Does an Industry Locate?," Journal of Urban Economics, Elsevier, vol. 35(1), pages 83-104, January.
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  16. Keane, Michael P & Runkle, David E, 1992. "On the Estimation of Panel-Data Models with Serial Correlation When Instruments Are Not Strictly Exogenous," Journal of Business & Economic Statistics, American Statistical Association, vol. 10(1), pages 1-9, January.
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