Working Papers

Taking the early U.S. automobile industry as an example, we evaluate four competing hypotheses on regional industry agglomeration: intra-industry local externalities, inter-industry local externalities, employee spinouts, and location fixed effects. Our findings suggest that in the automobile case, inter-industry local externalities (particularly from the carriage and wagon industry) and employee spinouts (particularly due to the high spinout rate in Detroit) play important roles. The presence of other firms in the same industry has a negligible or negative effect. Finally, local inputs account for some agglomeration in the short run, but the effects are much more profound in the long run.

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