Agglomeration Economies and Industry Location Decisions: The Impacts of Vertical and Horizontal Spillovers
2017
Cohen, Jeffrey P. | Morrison Paul, Catherine J.
Economic analysis of production processes and performance typically neglectsconsideration of spatial and industry inter-dependencies that may affect economicperformance, although there is increasing theoretical recognition that such linkages maybe both substantive and expanding. In particular, thick market or agglomeration effectsmay arise due to knowledge or other types of spillovers associated with own-industry(horizontal), and supply-side or demand-driven (vertical), externalities. In this paper weprovide a conceptual and empirical framework for measuring and evaluating suchspillovers, which allows us both to quantify their cost-effects, and to evaluate theircontribution to location decisions. We focus on the U.S. food manufacturing sector, andthe spillovers that may occur across states within the sector and from agriculturalproduction (supply) and consumer buying power (demand). And we find substantivetotal and marginal cost-impacts in both spatial and industry dimensions, which appear tobe motivating forces for regional concentration patterns of the U.S. food manufacturingindustries.
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