Input–output linkages, proximity to final demand and the location of manufacturing industries

In this chapter 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 (J Econ Geogr 4: 227–250, 2004b), I propose a way to reconcile some previous puzzling results about proximity to consumers’ demand and the scope of agglomeration forces. Results suggest that flows of intermediate goods 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 theory. 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. Very close interactions are extremely important but, when considering what is beyond the limit of local markets, then distance does not matter so much.