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Input-output linkages, proximity to final demand and the location of manufacturing industries

  • MION, Giordano

In this paper I develop an empirical framework to estimate the role of agglomeration externalities, especially those stemming from input-output linkages, in the location process of US manufacturing plants. Furthermore, drawing on the model of Holmesand Stevens (2004b), I propose a way to reconciliate some previous puzzling results about proximity to consumers' demand and the scope of agglomeration forces. Results suggest that intermediate flows have a positive impact, especially for big plants, on local specialization. By contrast, consumers' demand has a negative effect and this result is consistent with the model of Holmes and Stevens (2004b). However, the majority of both effects comes from very local interactions, with spatial spill-oversbeing quite weak, but with a very large geographical scope. This result suggests some kind of strong non-linearity in the underlying spatial process. While, very close interactions are extremely important, when considering what is beyond the limit of local markets then distance does not matter so much.

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Paper provided by Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) in its series CORE Discussion Papers with number 2004053.

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Date of creation: 00 Jul 2004
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Handle: RePEc:cor:louvco:2004053
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  1. Giuseppe De Arcangelis & Giordano Mion, 2002. "Spatial Externalities and Empirical Analysis: The case of Italy," series 0006, Dipartimento di Scienze Economiche e Metodi Matematici - Università di Bari, revised Jan 2002.
  2. Donald R. Davis & David E. Weinstein, 1998. "Economic geography and regional production structure: an empirical investigation," Staff Reports 40, Federal Reserve Bank of New York.
  3. Lisa A. Cameron & Mary Amiti, 2004. "Economic Geography and Wages," Econometric Society 2004 Australasian Meetings 253, Econometric Society.
  4. Keith Head & Thierry Mayer, 2004. "Market Potential and the Location of Japanese Investment in the European Union," The Review of Economics and Statistics, MIT Press, vol. 86(4), pages 959-972, November.
  5. Redding, Stephen J. & Venables, Anthony J, 2000. "Economic Geography and International Inequality," CEPR Discussion Papers 2568, C.E.P.R. Discussion Papers.
  6. Gordon H. Hanson, 1998. "Market Potential, Increasing Returns, and Geographic Concentration," NBER Working Papers 6429, National Bureau of Economic Research, Inc.
  7. Puga, Diego, 1997. "The Rise and Fall of Regional Inequalities," CEPR Discussion Papers 1575, C.E.P.R. Discussion Papers.
  8. Vernon Henderson, 2001. "Marshall's Scale Economies," Working Papers 01-17, Center for Economic Studies, U.S. Census Bureau.
  9. Edward L. Glaeser & Glenn Ellison, 1999. "The Geographic Concentration of Industry: Does Natural Advantage Explain Agglomeration?," American Economic Review, American Economic Association, vol. 89(2), pages 311-316, May.
  10. Thomas J. Holmes & John J. Stevens, 2002. "Geographic concentration and establishment size: analysis in an alternative economic geography model," Finance and Economics Discussion Series 2002-17, Board of Governors of the Federal Reserve System (U.S.).
  11. Krugman, Paul, 1991. "Increasing Returns and Economic Geography," Journal of Political Economy, University of Chicago Press, vol. 99(3), pages 483-99, June.
  12. Stuart S. Rosenthal & William C. Strange, 2003. "Geography, Industrial Organization, and Agglomeration," Center for Policy Research Working Papers 56, Center for Policy Research, Maxwell School, Syracuse University.
  13. Rosenthal, Stuart S. & Strange, William C., 2001. "The Determinants of Agglomeration," Journal of Urban Economics, Elsevier, vol. 50(2), pages 191-229, September.
  14. Holmes, Thomas J. & Stevens, John J., 2004. "Spatial distribution of economic activities in North America," 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 63, pages 2797-2843 Elsevier.
  15. Russell Hillberry & David Hummels, 2002. "Explaining Home Bias in Consumption: The Role of Intermediate Input Trade," NBER Working Papers 9020, National Bureau of Economic Research, Inc.
  16. Combes, Pierre-Philippe, 2000. "Economic Structure and Local Growth: France, 1984-1993," Journal of Urban Economics, Elsevier, vol. 47(3), pages 329-355, May.
  17. LAFOURCADE, Miren & MION, Giordano, 2003. "Concentration, spatial clustering and the size of plants : disentangling the sources of co-location externalities," CORE Discussion Papers 2003091, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
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