A Spatial Analysis of Sectoral Complementarity

Posted: 5 May 2003

See all articles by Timothy G. Conley

Timothy G. Conley

University of Chicago - Booth School of Business

Bill Dupor

Federal Reserve Banks - Federal Reserve Bank of St. Louis

Abstract

This paper presents a spatial econometric method for characterizing productivity comovement across sectors of the U.S. economy. Input-output relations provide an economic distance measure that is used to characterize interactions between sectors, as well as conduct estimation and inference. We construct two different economic distance measures. One metric implies that two sectors are close to one another if they use inputs of other industrial sectors in nearly the same proportion, and the other metric implies that sectors are close if their outputs are used by the same sectors. Our model holds that covariance in productivity growth across sectors is a function of economic distance. We find that (1) positive cross-sector covariance of productivity growth generates a substantial fraction of the variance in aggregate productivity, (2) cross-sector productivity covariance tends to be greatest between sectors with similar input relations, and (3) there are constant to modest increasing returns to scale. We test and reject the hypothesis that these correlations are due to a common shock.

Suggested Citation

Conley, Timothy G. and Dupor, William Daniel, A Spatial Analysis of Sectoral Complementarity. Journal of Political Economy, Vol. 111, April 2003. Available at SSRN: https://ssrn.com/abstract=384223

Timothy G. Conley (Contact Author)

University of Chicago - Booth School of Business ( email )

5807 S. Woodlawn Avenue
Chicago, IL 60637
United States
773-702-7281 (Phone)

William Daniel Dupor

Federal Reserve Banks - Federal Reserve Bank of St. Louis ( email )

411 Locust St
Saint Louis, MO 63011
United States

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