Intercity interactions: evidence from the US

Using national level input-output matrices, we propose a strategy to identify pecuniary externalities operating through the markets for intermediate goods at the local level. Then, controlling for common shocks in a spatial econometric framework, (i) we estimate the e®ect of pecuniary externalities on productivity growth; (ii) we disentangle such e®ect from the one of other local interactions (i.e. knowledge or other face-to-face spillovers) and that of local characteristics; (iii) we evaluate the scope of operating of all kind of externalities using di®erent distance measures. Our estimates suggest that pecuniary externalities and other kinds of local interactions coexist, that their e®ect on productivity growth is decreasing with distance and that it depends on inter-city diversity and the pattern of local specialisation