Input-Output Linkages, Proximity to Final Demand and the Location of Manufacturing Industries

In this paper I develop an empirical framework to estimate the role of agglomeration externalities, especially those stemming from input-output linkages, in the location process of US manufacturing plants. Furthermore, drawing on the model of Holmes and Stevens (2004b), I propose a way to reconciliate some previous puzzling results about proximity to consumers' demand and the scope of agglomeration forces. Results suggest that intermediate flows have a positive impact, especially for big plants, on local specialization. By contrast, consumers' demand has a negative effect and this result is consistent with the model of Holmes and Stevens (2004b). However, the majority of both effects comes from very local interactions, with spatial spill-overs being quite weak, but with a very large geographical scope. This result suggests some kind of strong non-linearity in the underlying spatial process. While, very close interactions are extremely important, when considering what is beyond the limit of local markets then distance does not matter so much