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The Determinants of Geographic Concentration of Industry: A Quantitative Analysis

Author

Listed:
  • Zhu Wang

    (Federal Reserve Bank of Richmond)

  • Daniel Yi Xu

    (Duke University)

  • Luis Cabral

    (New York University)

Abstract

Taking the early U.S. automobile industry as an example, we evaluate two competing hypotheses on geographic concentration of industry: local externalities versus employee spinoffs. Our findings suggest that both forces contribute to industry agglomeration through their specific channels, and the spinoff effect can be viewed as a special form of local externalities. Calibrating our model to the quantitative pattern of industry evolution reveals that traditional local externalities are main driving forces of agglomeration. Particularly, the local economy and related industries play an important role by fostering new entrants. Spinoffs play a secondary role and contribute to an increased concentration at later stages of the industry life cycle.

Suggested Citation

  • Zhu Wang & Daniel Yi Xu & Luis Cabral, 2012. "The Determinants of Geographic Concentration of Industry: A Quantitative Analysis," 2012 Meeting Papers 615, Society for Economic Dynamics.
  • Handle: RePEc:red:sed012:615
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    References listed on IDEAS

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    1. Klepper, Steven, 2010. "The origin and growth of industry clusters: The making of Silicon Valley and Detroit," Journal of Urban Economics, Elsevier, vol. 67(1), pages 15-32, January.
    2. Guido Buenstorf & Steven Klepper, 2009. "Heritage and Agglomeration: The Akron Tyre Cluster Revisited," Economic Journal, Royal Economic Society, vol. 119(537), pages 705-733, April.
    3. Guy Dumais & Glenn Ellison & Edward L. Glaeser, 2002. "Geographic Concentration As A Dynamic Process," The Review of Economics and Statistics, MIT Press, vol. 84(2), pages 193-204, May.
    4. Ellison, Glenn & Glaeser, Edward L, 1997. "Geographic Concentration in U.S. Manufacturing Industries: A Dartboard Approach," Journal of Political Economy, University of Chicago Press, vol. 105(5), pages 889-927, October.
    5. J J Dinkel & G A Kochenberger & S-N Wong, 1977. "Sensitivity Analysis of Regional Planning Models," Environment and Planning A, , vol. 9(1), pages 85-98, January.
    6. Hopenhayn, Hugo A, 1992. "Entry, Exit, and Firm Dynamics in Long Run Equilibrium," Econometrica, Econometric Society, vol. 60(5), pages 1127-1150, September.
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