The birth of new Clusters∗

Externalities across related industries have been mentioned as a potential key for economic development. Nonetheless, the literature provides little identified evidence of a causal link between the location of one large firm and the subsequent entry of new related industries to the region. To address that gap, in this paper we use two decades of US county-level data from 1977 to 1997 and combine it with the “Million Dollar Plants” natural-experiment (MDP), in which a large industrial plant located in one shortlisted county for arguably exogenous reasons (see Greenstone, Hornbeck, and Moretti, 2010; JPE). After remarking a “boom” in non-tradable activities, our main result is that the subsequent birth of new industries related to the MDP’s industry is 50%-75% higher for treated counties than for the control group. In contrast, the difference between treatment and control groups is economically and statistically insignificant for industries that are unrelated to these arguably exogenous MDP plants. Our preliminary results support the view that today’s industries causally impact the type of firms that will born in the future. There is hysteresis in how regions locate in the “industry-space", so movements in this space can have strategic consequences for subsequent entrants. JEL O25, R12, F23.