Industrial Development in Cities

46 Pages Posted: 4 Jan 2002 Last revised: 26 Apr 2015

See all articles by J. Vernon Henderson

J. Vernon Henderson

London School of Economics & Political Science (LSE); National Bureau of Economic Research (NBER)

Ari Kuncoro

University of Indonesia

Matthew Turner

University of Toronto

Date Written: October 1992

Abstract

Using extensive data on 1970 and 1987 urban characteristics, the paper analyzes changes in employment in specific manufacturing industries in cities between 1970 and 1987. Two sets of questions are the focus. First, what present or past characteristics of a city's economic environment are critical in determining current employment levels in different industries? How much persistence in employment patterns is there over time and what is the source of that persistence? The second set of questions explores what inferences can be made from the data and results concerning the nature of externalities in urban markets, involving diversity of suppliers to firms, information spillovers concerning current market conditions and information spillovers involving the spread of technology. While the literature assumes employment levels in individual industries in individual cities show strong mean reversion ("convergence"), in fact that is not the case in the 1970-87 time period. The raw data show strong persistence. The major source of that persistence appears to be persistence in local demand conditions (i.e., persistence in regional comparative advantage), as opposed to other measured or unmeasured urban characteristics. Retention of employment is also strongly helped by the historical degree of local specialization in the industry, perhaps indicating a form of dynamic externality. Other historical conditions are not important.

Suggested Citation

Henderson, J. Vernon and Kuncoro, Ari and Turner, Matthew A., Industrial Development in Cities (October 1992). NBER Working Paper No. w4178. Available at SSRN: https://ssrn.com/abstract=226788

J. Vernon Henderson (Contact Author)

London School of Economics & Political Science (LSE) ( email )

Houghton Street
London, WC2A 2AE
United Kingdom

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Ari Kuncoro

University of Indonesia ( email )

Jl. Prof. Sumitro Djojohadikusumo
Depok, DKI 16424
Indonesia

Matthew A. Turner

University of Toronto ( email )

Department of Economics
150 St. George Street
Toronto, Ontario M5S 3G7
Canada

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