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Network Effects and Geographic Concentration of Industry

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Abstract

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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