Must-Read: Nicholas Crafts and Alexander Klein: Agglomeration Economies and Productivity Growth: U.S. Cities, 1880-1930

Must-Read: Industry-specific agglomeration economies are–or at least were–once a thing. Another piece of data for the Hamiltonian project: when the important productive resource is the community of engineering practice that no single entrepreneur captures the quasi-rents from, *you need the government to incentivize the building of that community of engineering practice–if, that is, you want to have a top-league economy.

Nicholas Crafts and Alexander Klein: Agglomeration Economies and Productivity Growth: U.S. Cities, 1880-1930: “We investigate the role of industrial structure in productivity growth in U.S. cities between 1880 and 1930…

…using a new dataset constructed from the Census of Manufactures. We find that increases in specialization were associated with faster productivity growth but that diversity only had positive effects on productivity performance in large cities. We interpret our results as providing strong support for the importance of Marshallian externalities. Industrial specialization increased considerably in U.S. cities in the early 20th century, probably as a result of improved transportation, and we estimate that this resulted in significant gains in labor productivity.