Propagation and Ampli cation of Local Productivity Spillovers

Abstract

This paper shows that local productivity spillovers propagate throughout the economy through the plant-level networks of multi-region firms. Using confidential Census plant-level data, we show that large manufacturing plant openings not only raise the productivity of local plants but also of distant plants hundreds of miles away, which belong to multi-region firms that are exposed to the local productivity spillover through one of their plants. To quantify the significance of plant-level networks for the propagation and amplification of local productivity shocks, we develop and estimate a quantitative spatial model in which plants of multi-region firms are linked through shared knowledge. Our model features heterogeneous regions, which interact through goods trade and labor markets, as well as within-location, across-plant heterogeneity in productivity, wages, and employment. Counterfactual exercises show that while knowledge sharing through plant-level networks amplifies the aggregate effects of local productivity shocks, it widens economic disparities between individual workers and regions in the economy. Institutional subscribers to the NBER working paper series, and residents of developing countries may download this paper without additional charge at www.nber.org.