Simulating Confidence for the Ellison-Glaeser Index

The Ellison-Glaeser (1997) index is an unbiased statistic of industrial localization. Though the expected value of the index is known, ad hoc values are used to interpret the extent of localization. We improve on the interpretation of the index by simulating condence intervals while varying the underlying parameters of the lognormal distribution of plant employment size and the number of plants in the industry. In the data, we nd cases whose index value is above the ad hoc threshold that are not statistically signicant. We nd many cases below the ad hoc threshold that are statistically signicant.