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. • We introduce a novel, granular measure of industry and county patterns of agglomeration with two components • Horizontal agglomeration accounts for co-location patterns across own-industry and peer/competitor firms that produce common outputs. • Vertical agglomeration accounts for co-location patterns between suppliers and upstream companies. • We discuss how rates of horizontal and vertical agglomeration vary with industry characteristics: that horizontal agglomeration is correlated with more R&D intensive industries, and vertical agglomeration is correlated with industries that have a higher value of their intermediate inputs from the manufacturing sector • Using the semiconductor industry as an example, we illustrate how heterogeneity in industry-county rates of vertical and horizontal agglomeration might reflect differences in the products that firms operating in different counties manufacture.