A New Measure of Inter-Industry Distance and Its Application to the U.S. Regional Growth

35 Pages Posted: 18 Jan 2017 Last revised: 13 Mar 2017

See all articles by Yeo Joon Yoon

Yeo Joon Yoon

Korea Institute for International Economic Policy

Unjung Whang

Korea Institute for International Economic Policy

Date Written: December 30, 2016

Abstract

We propose a new measure of inter-industry ‘distance’. This is constructed a la Antras et al. (2012). While they measure the distance of an industry from its final use - what they call ‘downstreamness’ of an industry - we measure the distance between a pair of industries. Our proposed index is a measure of input-output linkages between industries that incorporates a ‘distance’ flavor. Our measure distinguishes the number of vertical production stages that an industry’s product goes through until it is finally used by another industry by assigning larger weights to the value of input use with longer production chains.

Hence our measure contains more information on the relation between two industries along the vertical production chain. We use this index to construct an aggregate measure of ‘industry connectedness’ of regions in the U.S. It measures the degree of industrial linkages of a region. We then empirically establish that each region’s labor productivity is positively associated with the ‘industry connectedness’. The result contributes to the large literature of agglomeration economies that the industrial linkage is one of the main sources of agglomeration economies and productivity growth, as emphasized by Marshall (1920). It also suggests that our index can serve as an alternative measure of the industrial linkages.

Keywords: Inter-industry Distance, Regional Growth, Input-Output Linkages

JEL Classification: F43, F63, O11

Suggested Citation

Yoon, Yeo Joon and Whang, Unjung, A New Measure of Inter-Industry Distance and Its Application to the U.S. Regional Growth (December 30, 2016). KIEP Research Paper Working, Papers 16-11, Available at SSRN: https://ssrn.com/abstract=2901395 or http://dx.doi.org/10.2139/ssrn.2901395

Yeo Joon Yoon (Contact Author)

Korea Institute for International Economic Policy ( email )

[30147] Building C, Sejong National Research Compl
Seoul, 370
Korea, Republic of (South Korea)

Unjung Whang

Korea Institute for International Economic Policy ( email )

[30147] Building C, Sejong National Research Compl
Seoul, 370
Korea, Republic of (South Korea)

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