Propagation and Amplification of Local Productivity Spillovers

Holger Mueller, Xavier Giroud, Simone Lenzu and Quinn Maingi

No 16388, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: Abstract This paper shows that local productivity spillovers propagate throughout the economy through the plant-level networks of multi-region firms. Using confidential Census plant-level data, we show that large manufacturing plant openings not only raise the productivity of local plants but also of distant plants hundreds of miles away, which belong to multi-region firms that are exposed to the local productivity spillover through one of their plants. To quantify the significance of plant-level networks for the propagation and amplification of local productivity shocks, we develop and estimate a quantitative spatial model in which plants of multi-region firms are linked through shared knowledge. Our model features heterogeneous regions, which interact through goods trade and labor markets, as well as within-location, across-plant heterogeneity in productivity, wages, and employment. Counterfactual exercises show that while knowledge sharing through plant-level networks amplifies the aggregate effects of local productivity shocks, it widens economic disparities between individual workers and regions in the economy.

Date: 2021-07
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Related works:
Working Paper: Propagation and Amplification of Local Productivity Spillovers (2022)
Working Paper: Propagation and Amplification of Local Productivity Spillovers (2021)
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