Working Paper: CEPR ID: DP3912
Authors: Pierre-Philippe Combes; Thierry Magnac; Jean-Marc Robin
Abstract: This Paper studies the impact of local economic structure on local sectoral employment growth. Local employment growth is decomposed into ?internal? growth (the growth of the size of existing plants) and ?external? growth (the creation of new plants). Using panel data methods, we estimate the dynamics of both variables simultaneously. Our observations refer to 36 manufacturing, trade and service sectors and 341 French ?Employment Areas? in every year between 1984 and 1993. Carefully specifying the short-run dynamics and controlling for fixed effects and endogeneity are proved to be critical devices. The low order of the selected model, an ARMA (1,1), implies that static externalities are prevalent compared to dynamic ones. Moreover, whereas fixed effects explain most of the spatial variation of plant size, plant creation is mainly determined by the current local economic structure. Policies targeted on the creation of new plants should therefore prove to be more rapidly efficient. For instance, large areas endowed with a small number of even size sectors and large leader firms transferring growth to smaller numerous plants experience larger growth.
Keywords: Economic Geography; Employment; Local Labour Markets; Panel Data
JEL Codes: C33; D40; L23; R11
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| local economic structure (R11) | local sectoral employment growth (O29) |
| local economic conditions (R11) | internal growth (O00) |
| local economic conditions (R11) | external growth (O36) |
| larger areas with fewer evenly-sized sectors (R12) | greater external growth (O36) |
| size of local economy (R12) | agglomeration economies (R11) |
| agglomeration economies (R11) | growth in plant size (O41) |
| agglomeration economies (R11) | number of plants (Q10) |
| local competition (L13) | emergence of larger plants (D40) |
| number of smaller plants (Q12) | emergence of larger plants (D40) |