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http://ssrn.com/abstract=1078027
 
 

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Identifying Agglomeration Spillovers: Evidence from Million Dollar Plants


Michael Greenstone


Massachusetts Institute of Technology (MIT) - Department of Economics; National Bureau of Economic Research (NBER)

Richard Hornbeck


Massachusetts Institute of Technology (MIT) - Department of Economics

Enrico Moretti


University of California, Berkeley - Department of Economics; National Bureau of Economic Research (NBER); Institute for the Study of Labor (IZA)

December 19, 2007

MIT Department of Economics Working Paper No. 07-31

Abstract:     
We quantify agglomeration spillovers by estimating the impact of the opening of a large manufacturing plant on the total factor productivity (TFP) of incumbent plants in the same county. We use the location rankings of profit-maximizing firms to compare incumbent plants in the county where the new plant ultimately chose to locate (the “winning county”), with incumbent plants in the runner-up county (the “losing county”). Incumbent plants in winning and losing counties have similar trends in TFP in the seven years before the new plant opening. Five years after the new plant opening, TFP of incumbent plants in winning counties is 12% higher than TFP of incumbent plants in losing counties. Consistent with some theories of agglomeration economies, this effect is larger for incumbent plants that share similar labor and technology pools with the new plant. Consistent with a spatial equilibrium model, we find evidence of a relative increase in skill-adjusted labor costs in winning counties. This indicates that the ultimate effect on profits is smaller than the direct increase in productivity.

Number of Pages in PDF File: 68

Keywords: agglomeration, spillovers, TFP, total factor productivity, network effects, externalities, social interactions, local competition for firms, urban development

JEL Classification: D24, L1, R1, H25, O1, J2, J3

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Date posted: December 27, 2007 ; Last revised: April 28, 2010

Suggested Citation

Greenstone, Michael and Hornbeck, Richard and Moretti, Enrico, Identifying Agglomeration Spillovers: Evidence from Million Dollar Plants (December 19, 2007). MIT Department of Economics Working Paper No. 07-31. Available at SSRN: http://ssrn.com/abstract=1078027 or http://dx.doi.org/10.2139/ssrn.1078027

Contact Information

Michael Greenstone (Contact Author)
Massachusetts Institute of Technology (MIT) - Department of Economics ( email )
50 Memorial Drive
E52-391
Cambridge, MA 02142
United States
National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
Richard Hornbeck
Massachusetts Institute of Technology (MIT) - Department of Economics ( email )
50 Memorial Drive
E52-391
Cambridge, MA 02142
United States
Enrico Moretti
University of California, Berkeley - Department of Economics ( email )
549 Evans Hall #3880
Berkeley, CA 94720-3880
United States
HOME PAGE: http://emlab.berkeley.edu/~moretti/
National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
Institute for the Study of Labor (IZA)
P.O. Box 7240
Bonn, D-53072
Germany
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