Corn ethanol in the Midwestern USA: Local competition, entry and agglomeration

Abstract

Abstract This article analyzes the entry of corn-ethanol plants in the Midwestern USA, where the majority of corn in the USA is grown, during the second US ethanol boom. In particular, we examine whether the presence of existing ethanol plants affects ethanol plant entry decisions at the county level using discrete response panel models. There are two main channels through which existing ethanol plants may affect ethanol plant entry decisions: a competition effect and an agglomeration effect. Our results show that existing ethanol plants have a negative effect on the probability of ethanol plant entry in a given county. The net negative competition effect dissipates with distance. We also find that existing conglomerates and large ethanol producing firms in neighboring counties have a positive effect on ethanol plant entry, while existing singlet plants in neighboring counties do not. These results provide evidence for both local competition among ethanol plants within counties, as well as possible agglomeration benefits from existing conglomerates and large ethanol producing firms in neighboring counties.