Regional industrial structure and agglomeration economies: An analysis of productivity in three manufacturing industries

We investigate whether a more concentrated regional industrial structure – the dominance of a few large firms in a given industry in a region – limits agglomeration economies and ultimately diminishes the economic performance of firms in that industry, especially small ones. In an application to three industries using establishment-level production functions and a combination of confidential and publicly available data sources, we find a consistently negative and substantial direct productivity effect associated with regional industrial structure concentration and only mixed and relatively weak evidence that agglomeration economies are a mediating factor in that effect.

Research highlights► We investigate the effects of a concentrated regional industrial structure for the performance of manufacturing firms. ► Three industries are examined using establishment-level production functions constructed using confidential U.S. Census data. ► More concentrated industrial structures reduce economic performance, particularly for small firms. ► We do not find strong evidence that limits on agglomeration economies mediate the effect.