Agglomeration Externalities and Productivity Growth: U.S. Cities, 1880-1930

We investigate the role of industrial structure in labour productivity growth in manufacturing in U.S. cities during the ‘second industrial revolution’. We find that initially greater specialization was associated with faster subsequent productivity growth but that only the very high levels of diversity which obtained in some very large cities had a positive correlation. We interpret our results as demonstrating the existence of dynamic Marshallian externalities. The impact of industrial specialization in our sample of U.S. cities after 1890 is found to have raised the level of labour productivity in manufacturing by about 4 per cent by 1920.