We propose a new measure of inter-industry ‘distance’. This is constructed a la Antras et al. (2012). While they measure the distance of an industry from its final use ？ what they call ‘downstreamness’ of an industry ？ we measure the distance between a pair of industries. Our proposed index is a measure of input-output linkages between industries that incorporates a ‘distance’ flavor. Our measure distinguishes the number of vertical production stages that an industry’s product goes through until it is finally used by another industry by assigning larger weights to the value of input use with longer production chains.
Hence our measure contains more information on the relation between two industries along the vertical production chain. We use this index to construct an aggregate measure of ‘industry connectedness’ of regions in the U.S. It measures the degree of industrial linkages of a region. We then empirically establish that each region’s labor productivity is positively associated with the ‘industry connectedness’. The result contributes to the large literature of agglomeration economies that the industrial linkage is one of the main sources of agglomeration economies and productivity growth, as emphasized by Marshall (1920). It also suggests that our index can serve as an alternative measure of the industrial linkages.

Keywords: Inter-industry Distance, Regional Growth, Input-Output Linkages
JEL Classification: F43, F63, O11
 

Executive Summary

1. Introduction

2. Measure of Inter-Industry Distance

3. The Empirical Analysis
3-1. Model Specification
3-2. Data Description
3-3. Empirical Results

4. Concluding Remarks

References

Appendix