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Network Effects and Geographic Concentration of Industry

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This paper provides a theory of “family network”, in contrast to “local externalities”, to explain the geographic concentration of industry. For many industries, one most important source of entrants is spinoffs, who typically locate near parent firms and benefit from knowledge linkage and business relation within the family network. As a result, firms are more likely to enter and less likely to exit if they are associated with a large family. Using a unique dataset of US automobile industry in its early years, we identify six historically important production centers and sixty spinoff families. Our empirical analysis disentangles the effect of “family networks” from other “local externalities,” and provides strong evidence that it was the former rather than the latter that caused the geographic concentration of US automobile production.

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File URL: http://www.netinst.org/Wang_Xu_08-14.pdf
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Bibliographic Info

Paper provided by NET Institute in its series Working Papers with number 08-14.

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Length: 23 pages
Date of creation: Sep 2008
Date of revision: Sep 2008
Handle: RePEc:net:wpaper:0814

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Keywords: Spinoffs; Entry and Exit; Geography of Industry;

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  1. Jovanovic, Boyan, 1982. "Selection and the Evolution of Industry," Econometrica, Econometric Society, vol. 50(3), pages 649-70, May.
  2. Hopenhayn, Hugo A, 1992. "Entry, Exit, and Firm Dynamics in Long Run Equilibrium," Econometrica, Econometric Society, vol. 60(5), pages 1127-50, September.
  3. Guy Dumais & Glenn Ellison & Edward L Glaeser, 1998. "Geographic Concentration as a Dynamic Process," Working Papers 98-3, Center for Economic Studies, U.S. Census Bureau.
  4. Ellison, G. & Glaeser, E.L., 1994. "Geographic Concentration in U.S. Manufacturing Industries: A Dartboard Approach," Working papers 94-27, Massachusetts Institute of Technology (MIT), Department of Economics.
  5. Paul Krugman, 1997. "Development, Geography, and Economic Theory," MIT Press Books, The MIT Press, edition 1, volume 1, number 026261135x, December.
  6. Paul Krugman, 1990. "Increasing Returns and Economic Geography," NBER Working Papers 3275, National Bureau of Economic Research, Inc.
  7. John M. Quigley, 1998. "Urban Diversity and Economic Growth," Journal of Economic Perspectives, American Economic Association, vol. 12(2), pages 127-138, Spring.
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