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A Flexible Test for Agglomeration Economies in Two U.S. Manufacturing Industries

  • Edward Feser
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    This paper uses the inverse input demand function framework of Kim (1992) to test for economies of industry and urban size in two U.S. manufacturing sectors of differing technology intensity: farm and garden machinery (SIC 352) and measuring and controlling devices (SIC 382). The inverse input demand framework permits the estimation of the production function jointly with a set of cost shares without the imposition of prior economic restrictions. Tests using plant-level data suggest the presence of population scale (urbanization) economies in the moderate- to low-technology farm and garden machinery sector and industry scale (localization) economies in the higher technology measuring and controlling devices sector. The efficiency and generality of the inverse input demand approach are particularly appropriate for micro-level studies of agglomeration economies where prior assumptions regarding homogeneity and homotheticity are less appropriate.

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    Paper provided by Center for Economic Studies, U.S. Census Bureau in its series Working Papers with number 04-14.

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    Length: 32 pages
    Date of creation: Aug 2004
    Date of revision:
    Handle: RePEc:cen:wpaper:04-14
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    1. Byong-Hyong Bahk & Michael Gort & Richard A Wall, 1991. "Decomposing Technical Change," Working Papers 91-4, Center for Economic Studies, U.S. Census Bureau.
    2. Antonio Ciccone & Robert E. Hall, 1993. "Productivity and the Density of Economic Activity," NBER Working Papers 4313, National Bureau of Economic Research, Inc.
    3. Edward Kokkelenberg & Sang Nguyen, 1989. "Modeling technical progress and total factor productivity: A plant level example," Journal of Productivity Analysis, Springer, vol. 1(1), pages 21-42, March.
    4. Kim, H Youn, 1992. "The Translog Production Function and Variable Returns to Scale," The Review of Economics and Statistics, MIT Press, vol. 74(3), pages 546-52, August.
    5. Martin, Sheila & McHugh, Richard & Johnson, Stanley R., 1993. "The Influence of Location on Productivity: Manufacturing Technology in Rural and Urban Areas," Staff General Research Papers 707, Iowa State University, Department of Economics.
    6. Nakamura, Ryohei, 1985. "Agglomeration economies in urban manufacturing industries: A case of Japanese cities," Journal of Urban Economics, Elsevier, vol. 17(1), pages 108-124, January.
    7. Moomaw, Ronald L., 1985. "Firm location and city size: Reduced productivity advantages as a factor in the decline of manufacturing in urban areas," Journal of Urban Economics, Elsevier, vol. 17(1), pages 73-89, January.
    8. Sveikauskas, Leo A, 1975. "The Productivity of Cities," The Quarterly Journal of Economics, MIT Press, vol. 89(3), pages 393-413, August.
    9. repec:cup:cbooks:9780521314275 is not listed on IDEAS
    10. Mountain, Dean C, 1986. "Economies of Scale versus Technological Change: An Aggregate Production Function for Switzerland," The Review of Economics and Statistics, MIT Press, vol. 68(4), pages 707-11, November.
    11. Mark E Doms, 1993. "Energy Intensity, Electricity Consumption, and Advanced Manufacturing Technology Usage," Working Papers 93-9, Center for Economic Studies, U.S. Census Bureau.
    12. Aivazian, Varouj A, et al, 1987. "Economies of Scale versus Technological Change in the Natural Gas Transmission Industry," The Review of Economics and Statistics, MIT Press, vol. 69(3), pages 556-61, August.
    13. Henderson, J. Vernon, 1986. "Efficiency of resource usage and city size," Journal of Urban Economics, Elsevier, vol. 19(1), pages 47-70, January.
    14. Chan, M W Luke & Mountain, Dean C, 1983. "Economies of Scale and the Tornqvist Discrete Measure of Productivity Growth," The Review of Economics and Statistics, MIT Press, vol. 65(4), pages 663-67, November.
    15. Sang V Nguyen & Arnold P Reznek, 1990. "Returns to Scale in Small and Large U.S. Manufacturing Establishments," Working Papers 90-11, Center for Economic Studies, U.S. Census Bureau.
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