Our analysis begins with an empirical investigation of how employment concentration in industries and occupations across United States regions has changed over time, and how regional specialization has changed. Results show that industry concentration and specialization indices have fallen, while occupation concentration and specialization indices have risen. Using this background as motivation, we develop a model in which the comparative advantage of regions lies in their productivity of supplying functions such as law, finance, advertising and engineering, to multiple sectors. Region-function-specific productivity differences shape the location decisions of industries that use multiple functions, and hence determine patterns of regional specialization both in functions and in sectors. A key parameter is the cost of sourcing functions from a different region (fragmentation costs) and we show that a fall in this cost mimics the data: sector concentration and regional specialization fall and function concentration and specialization rise.

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26 November 2024

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Canadian Journal of Economics 57(4) , pp.1236-1264, 2024

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DOI: 10.1111/caje.12747

https://onlinelibrary.wiley.com/doi/full/10.1111/caje.12747

This Journal article is published under the centre's Trade programme, Urban programme.