Working Paper: NBER ID: w13833
Authors: Michael Greenstone; Richard Hornbeck; Enrico Moretti
Abstract: We quantify agglomeration spillovers by estimating the impact of the opening of a large new manufacturing plant on the total factor productivity (TFP) of incumbent plants in the same county. Articles in the corporate real estate journal Site Selection reveal the county where the "Million Dollar Plant" ultimately chose to locate (the "winning county"), as well as the one or two runner-up counties (the "losing counties"). The incumbent plants in the losing counties are used as a counterfactual for the TFP of incumbent plants in winning counties in the absence of the plant opening. Incumbent plants in winning and losing counties have economically and statistically similar trends in TFP in the 7 years before the opening, which supports the validity of the identifying assumption. \n \nAfter the new plant opening, incumbent plants in winning counties experience a sharp relative increase in TFP. Five years after the opening, TFP of incumbent plants in winning counties is 12% higher than TFP of incumbent plants in losing counties. Consistent with some theories of agglomeration, this effect is larger for incumbent plants that share similar labor and technology pools with the new plant. We also find evidence of a relative increase in skill-adjusted labor costs in winning counties, indicating that the ultimate effect on profits is smaller than the direct increase in productivity.
Keywords: Agglomeration Spillovers; Total Factor Productivity; Manufacturing Plants; Economic Policy; Local Subsidies
JEL Codes: J0; R0
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| opening of a new million-dollar plant (MDP) (O39) | relative increase in TFP among incumbent plants in winning counties (O49) |
| relative increase in TFP among incumbent plants in winning counties (O49) | output of incumbent plants in winning counties (L94) |
| one standard deviation increase in worker transitions (J62) | spillover effects (F69) |
| increased skill-adjusted labor costs in winning counties (J39) | ultimate effect on profits (L21) |