Productivity and the geographic concentration of industry: The role of plant scale

A large body of research has established a positive connection between an industry's productivity and the magnitude of its presence within locally defined geographic areas. This paper examines whether this relationship can be linked to a micro-level underpinning commonly associated with productivity: establishment scale. Looking at manufacturing industries across a sample of U.S. metropolitan areas, I find two primary results. First, average plant size increases substantially as an industry's employment in a metropolitan area rises. Second, the direct association between worker wages and local industry employment is more strongly associated with average plant size than the total number of plants, suggesting that localization economies may have significant organizational aspects.