Varieties of agglomeration: Disentangling horizontal and vertical agglomeration within the manufacturing sector in the United States

We decompose regional agglomerations into two components that differentiate between horizontal (co-location with peer industries) and vertical (co-location with suppliers) agglomeration. Using employment and establishment data at the US county level and the six-digit industry level, we demonstrate that manufacturing industries and regions that would otherwise look similar, in fact vary in their degree of vertical and horizontal agglomeration. Industries with a higher contribution of manufactured goods to overall inputs' value are correlated with vertical agglomeration, while more R&D intensive industries are correlated with horizontal agglomeration. Using the semiconductor industry as an illustrative example, we document how heterogeneity in industry-county rates of vertical and horizontal agglomeration reflects differences in the products manufactured. These industry-level and within-industry differences are under-observed and sometimes obfuscated by existing agglomeration measures. We conclude with a theoretical framework for regional and industrial policy interventions.