Network Effects and Geographic Concentration of Industry

Zhu Wang and Daniel Yi Xu ()
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Daniel Yi Xu: Department of Economics, New York University.

No 08-14, Working Papers from NET Institute

Abstract: This paper provides a theory of “family network”, in contrast to “local externalities”, to explain the geographic concentration of industry. For many industries, one most important source of entrants is spinoffs, who typically locate near parent firms and benefit from knowledge linkage and business relation within the family network. As a result, firms are more likely to enter and less likely to exit if they are associated with a large family. Using a unique dataset of US automobile industry in its early years, we identify six historically important production centers and sixty spinoff families. Our empirical analysis disentangles the effect of “family networks” from other “local externalities,” and provides strong evidence that it was the former rather than the latter that caused the geographic concentration of US automobile production.

Keywords: Spinoffs; Entry and Exit; Geography of Industry (search for similar items in EconPapers)
JEL-codes: J6 L0 R1 (search for similar items in EconPapers)
Pages: 23 pages
Date: 2008-09, Revised 2008-09
New Economics Papers: this item is included in nep-cse, nep-ent, nep-geo, nep-ind, nep-net and nep-ure
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Persistent link: https://EconPapers.repec.org/RePEc:net:wpaper:0814

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