Regional dominance and industrial success: a productivity-based analysis

The relationship between industrial structure and economic performance has long interested researchers in regional science, industrial economics, and economic development. Research on the subject, however, has largely overlooked the influence that regional industrial dominance—regional concentration within a specific industry— may have upon smaller local firms in that industry. This dissertation investigates the links between regional industrial dominance, agglomeration economies, and firm performance for selected U.S. industries, focusing on two main hypotheses: 1) plants in regional industries dominated by a few relatively large firms are less productive than establishments in the same industry located in other regions; 2) small establishments in dominated regional industries are less productive because they are limited in their ability to take advantage of regionally available external economies. Confidential micro-level data from the United States Census Bureau are used to estimate a cross-sectional production system at the plant level for three manufacturing sectors: rubber and plastics, metalworking machinery, and measuring and controlling devices. The models incorporate indicators of regional industrial dominance, spatially attenuating measures of agglomeration economies, and controls for other relevant establishment and regional characteristics. Estimating production functions at the establishment level serves to address many of the methodological drawbacks of earlier production function work and supports direct tests of the research hypotheses. The primary finding is that regional industrial dominance has substantial negative impacts on production, especially for small, dominated establishments. There is little evidence to support the second hypothesis that the diminished productivity of dominated businesses stems from reduced capacity to exploit localized agglomeration economies. The results demonstrate the importance of regional industrial dominance as a determinant of establishment productivity, and indicate that analysts and policymakers should examine regional industrial structure as a key component of the external environment that helps shape business performance and regional economic adaptability. Further research will be required to understand the precise mechanisms by which regional industrial dominance acts to influence economic performance and to guide the design of appropriate policies for economic development