Edited by Roger Sugden, Rita Hartung Cheng and G. Richard Meadows
Chapter 7: Economic gains from regional concentration of business operations
James Peoples* 1. INTRODUCTION Theory suggests that regional concentration of business operations can enhance production efficiency (Marshall, 1879). However, there has been a trend of growing geographical dispersion of business operations in the US. For example, major companies in brewing and automobile manufacturing have become much less centrally located. The rationale for such business trends, in part, is the ability to quickly service local markets, to reduce the companyÕs reliance on any one local labour market, to avoid high transportation costs, and to minimise potential harm from declining local economic conditions.1 The dispersion of business operations, though, is not limited to large multiplant corporations. Smaller fringe firms might avoid local competition over resources and instead choose to set up operations in locations with low industrial concentration. Given the rationale for dispersing operations regionally, this study examines whether it is still advantageous for US companies to operate mainly in a few localities. It is possible that regional concentration of operations presents business with a competitive advantage by enhancing productivity. Enhanced productivity occurs in part, because regionally concentrated business activity facilitates the development of expertise centres. These centres are most likely to be located in metropolitan areas given that large pools of skilled workers reside in these locations. This study tests the hypothesis on regional industrial concentration and industry performance in the US by estimating a productivity equation that includes regional concentration of industry operations as an explanatory variable. In contrast, past research on agglomeration and US productivity considers local population...
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