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This paper examines the microfoundations of agglomeration economies for U.S. manufacturing industries. Using industries as observations, we regress the Ellison Ž.Glaeser G. Ellison and E. Glaeser, 1997, J. Polit. Econ. 105, 889927 measure of spatial concentration on industry characteristics that proxy for the presence of knowl-edge spillovers, labor market pooling, input sharing, product shipping costs, and natural advantage. The analysis is conducted separately at the zipcode, county, and state levels. Results indicate that proxies for labor market pooling have the most robust effect, positively influencing agglomeration at all levels of geography. Proxies for knowledge spillovers, in contrast, positively affect agglomeration only at the zipcode level. Reliance on manufactured inputs or natural resources positively affects agglomeration at the state level but has little effect on agglomeration at lower levels of geography. The same is true for the perishability of output, a proxy for product shipping costs. 2001 Academic Press 1