Luis Cabral, Zhu Wang and Daniel Yi Xu
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 spillovers from the precedent industry (carriage and wagon in the case of automobile) play an important role. Spinouts play a secondary role and may work as a special type of intra-industry spillovers. The presence of other firms in the same industry has a negligible (or even negative) effect. Finally, local inputs account for some agglomeration in the short run, but the effects are much more profound in the long run.
The NBER working paper version can be found here (article available by subscription).