Geographic Concentration in U.S. Manufacturing Industries: A Dartboard Approach

Abstract

This paper discusses the prevalence of Silicon Valley‐style localizations of individual manufacturing industries in the United States. A model in which localized industry‐specific spillovers, natural advantages, and pure random chance all contribute to geographic concentration is used to develop a test for whether observed levels of concentration are greater than would be expected to arise randomly and to motivate new indices of geographic concentration and of coagglomeration. The proposed indices control for differences in the size distribution of plants and for differences in the size of the geographic areas for which data are available. As a consequence, comparisons of the degree of geographic concentration across industries can be made with more confidence. Our empirical results provide a strong reaffirmation of the previous wisdom in that we find almost all industries to be somewhat localized. In many industries, however, the degree of localization is slight. We explore the nature of agglomerative forces in describing patterns of concentration, the geographic scope of localization, and the coagglomeration of related industries and of industries with strong upstream‐downstream ties.