Abstract
We investigate whether a more concentrated regional industrial structure – the dominance of a few large firms in a given industry in a region – limits agglomeration economies and ultimately diminishes the economic performance of firms in that industry, especially small ones. In an application to three industries using establishment-level production functions and a combination of confidential and publicly available data sources, we find a consistently negative and substantial direct productivity effect associated with regional industrial structure concentration and only mixed and relatively weak evidence that agglomeration economies are a mediating factor in that effect.
Highlights
We investigate whether a more concentrated regional industrial structure—the dominance of a few large firms in a given industry in a region—limits agglomeration economies and diminishes the economic performance of firms in that industry, especially small ones
Regional Industrial Structure and Agglomeration Economies: An Analysis of Productivity in Three Manufacturing Industries INTRODUCTION Small manufacturing plants located in regions where their own industry is dominated by a few large firms may be less able to capture the benefits of agglomeration economies than plants in regions with a less concentrated industrial structure
In application to three industries, we find a consistently negative and substantial direct productivity effect associated with industrial structure concentration and only mixed and relatively weak evidence that agglomeration economies are a mediating factor in that effect
Summary
We investigate whether a more concentrated regional industrial structure—the dominance of a few large firms in a given industry in a region—limits agglomeration economies and diminishes the economic performance of firms in that industry, especially small ones. Rosenthal and Strange (2003) use micro-level data to calculate indicators of structure, regional cross-industry diversity, and concentric ring measures of localization and urbanization economies for six industries. They find that a higher share of regional industry employment in smaller establishments (or lower structural concentration, which they describe as an “entrepreneurial industrial system”) is associated with more firm births and new-establishment employment. Both of these studies reveal a link between regional industrial structure concentration and economic outcomes. Feser does not study industry-specific structure and neither Feser nor Rosenthal and Strange examine the intervening effect that structure may have on firms’ realization of specific kinds of local external economies
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