Identifying agglomeration spillovers
Subtitle: evidence from million dollar plants
By: [by] Michael Greenstone, Richard Hornbeck [and] Enrico Moretti
Contributors: Hornbeck, Richard; Moretti, Enrico; Massachusetts Institute of Technology. Dept. of Economics
Edition: Rev.
Series: Working paper series / Massachusetts Institute of Technology, Dept. of Economics -- working paper 07-31 [2010 revision]; Working paper (Massachusetts Institute of Technology. Dept. of Economics) -- no. 07-31, 2010.
Publisher: Massachusetts Institute of Technology, Dept. of Economics
Published: 2010
Place of publication: Cambridge, MA
Language: eng
Number of pages: 65
Subjects: Industrial clusters; Econometric models; Factories; Industrial productivity; Location
Description: We quantify agglomeration spillovers by estimating the impact of the opening of a large new manufacturing plant on the total factor productivity (TFP) of incumbent plants in the same county. Articles in the corporate real estate journal SITE SELECTION reveal the county where the Million Dollar Plant ultimately chose to locate (the winning county), as well as the one or two runner-up counties (the losing counties). The incumbent plants in the losing counties are used as a counterfactual for the TFP of incumbent plants in winning counties in the absence of the plant opening. Incumbent plants in winning and losing counties have economically and statistically similar trends in TFP in the 7 years before the opening, which supports the validity of the identifying assumption. After the new plant opening, incumbent plants in winning counties experience a sharp relative increase in TFP. Five years after the opening, TFP of incumbent plants in winning counties is 12% higher than TFP of incumbent plants in losing counties. Consistent with some theories of agglomeration, this effect is larger for incumbent plants that share similar labor and technology pools with the new plant. We also find evidence of a relative increase in skill-adjusted labor costs in winning counties, indicating that the ultimate effect on profits is smaller than the direct increase in productivity. Keywords: agglomeration, spillovers, TFP, total factor productivity, network effects, externalities, social interactions, local competition for firms, urban development. JEL Classifications: D24, L1, R1, H25, O1, J2, J3.
Notes: "December 19, 2007. Revised: April 26, 2010."

Includes bibliographical references (p. 48-50).

Abstract in HTML and working paper for download in PDF available via World Wide Web at the Social Science Research Network.