Identifying Agglomeration Spillovers: Evidence from Winners and Losers of Large Plant Openings

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.

Economic Reforms and Industrial Policy in a Panel of Chinese Cities

“…On the other hand, the local gains from spillovers through the agglomeration of labor may be partially o¤set by losses in other locations that experience an out ‡ow of …rms. As pointed out in Greenstone et al (2010) and Kline and Moretti (2014a), whether the gains o¤set the losses depends on the shape of the agglomeration force.…”

“…Kline and Moretti (2014b) …nd no aggregate gains through agglomeration forces, because local gains are o¤set by losses elsewhere. Greenstone et al (2010) estimate the e¤ect of large plant openings on incumbent …rms' TFP. They …nd that these agglomeration spillovers are positive but vary substantially across di¤erent cases.…”

“…Although the focus of the paper is empirical, and we do not present a formal model, it is useful to motivate and interpret our analysis in the light of spatial equilibrium models such as Greenstone et al (2010) and Redding (2012). Greenstone et al (2010) construct a model economy comprising many locations where …rms produce using labor, capital, and land.…”

“…Greenstone et al (2010) construct a model economy comprising many locations where …rms produce using labor, capital, and land. Firms are perfectly mobile, and their pro…ts are equalized in equilibrium.…”

Estimating the Effects of Nuclear Power Facilities on Local Income Levels: A Quasi-Experimental Approach

“…This study will contribute to the following two research strands in economics. First, this study is closely related to recent literature on the effects of specific economic shocks on local and regional economies, such as the effects of pipeline construction on the local labor market (Carrington, 1996), the effects of terrorist conflict on regional per capita GDP (Abadie and Gardeazabal, 2003), the effects of military base closures on local employment (Dardia et al, 1996, Hooker and Knetter, 2001, and Poppert and Herzog Jr., 2003, the effects of coal boom and bust on local employment and earning (Black et al, 2005), and the effects of large plant openings on total factor productivity of incumbent plants (Greenstone et al, 2010) 3 . 1 This passage is quoted from an interview with Toshitsuna Watanabe in Japanese at Diamond Online http://diamond.jp/articles/-/16605.…”