by Nicholas Crafts and Alexander Klein, discussion paper KDPE 1715, August 2017.
Non-technical summary:
It is well-known that patterns of regional specialization and the spatial concentration of manufacturing industries have changed markedly over time. Kim and Margo (2004) describe a trajectory where regional divergence developed in the context of industrialization during the late 19th and early 20th centuries but was then superseded by regional convergence in the second half of the 20th century. Holmes and Stevens (2004) stress that this latter phase is notable for the decline of the manufacturing belt in which 70 per cent of manufacturing employment was located in 1947 but only 40 per cent by 1999. Since Kim wrote his paper, which has become the standard reference on the topic, there have been important developments in the measurement of spatial concentration. Ellison and Glaeser (1997) explained that it is important to control for differences in the size distribution of plants when measuring spatial concentration and developed an index in which a measure of raw geographic concentration is modified by taking account of the plant Herfindahl index. An important refinement to the basic EG index is to take account of the geographical position of regions through allowing for ‘neighbourhood effects’. This leads to the spatially-weighted version of the EG index proposed by Guimarães et al. (2011) which represents a significant advance on Hoover’s localization coefficient.
In this paper we re-examine long-run trends in the spatial concentration of U.S. manufacturing industries over the long run. In particular, we construct a new dataset which permits the calculation of a spatially-adjusted version of the EG index at both SIC2 and SIC3 levels for selected census years from 1880 through 1997. Several important new results emerge from this exercise. First, we find that average spatial concentration was much lower in the late 20th than in the late 19th century and that this was the outcome of a continuing reduction over time.
Second, the persistent tendency to greater spatial dispersion was characteristic of most manufacturing industries. Third, even so, economically and statistically significant spatial concentration was pervasive throughout this period.
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