DP9435 Competitors, Complementors, Parents and Places: Explaining Regional Agglomeration in the U.S. Auto Industry

Author(s): Luís M B Cabral, Zhu Wang, Yi (Daniel) Xu
Publication Date: April 2013
Keyword(s): Employee spinouts, Industry agglomeration, Local externalities
JEL(s): J6, L0, R1
Programme Areas: Industrial Organization
Link to this Page: www.cepr.org/active/publications/discussion_papers/dp.php?dpno=9435

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 inter-industry spillovers, particularly the development of the carriage and wagon industry, play an important role. Spinouts play a secondary role and only contribute to agglomeration at later stages of industry evolution. The presence of other firms in the same industry has a negligible (or maybe even negative) effect on agglomeration. Finally, location fixed-effects account for some agglomeration, though to a lesser extent than inter-industry spillovers and spinouts.