Profit Pools and Determinants of Potential County-Level Manufacturing Growth

Abstract

Business location research often focuses on evaluating specific policies or explaining outcomes for a particular region. Further, the micro-foundations of random profit maximization supporting manufacturing location analysis often lack the intuitive nature of demand thresholds. While this article maintains these micro-foundations, it introduces a unifying concept of profit pools and examines how proximate supply/cost factors determine potential local manufacturing size. The approach avoids a number of limitations associated with other locational choice models. Restricted-access establishment-level data from the Longitudinal Business Database along with secondary data sources produce a model to estimate county-level contributors to outcomes of manufacturing establishment growth and consolidation. The analysis offers improved methods and accuracy for modeling establishment location outcomes, including accuracy in measuring industry size and methods for choosing among various count data distributions. The locational factors associated with county-level potential for manufacturing vary in magnitude and significance depending on the type of manufacturing, while affirming the importance of agglomeration across manufacturing types.