Resource‐driven agricultural clusters: Coagglomeration effects of the High Plains Aquifer

Abstract Quantifying the regional economic impacts of crop production is critical for assessing the broader implications of access to natural resources and government policies. However, most existing estimates rely on input–output models with restrictive assumptions, and competing theories of economic mechanisms provide little guidance on the sign or magnitude. We estimate local economic spillovers by exploiting a large increase in crop production that occurred due to the expansion of irrigation in counties overlying the High Plains Aquifer after World War II. While crop production was directly impacted by access to groundwater, we find that livestock product sales also increased significantly, reaching a 235% increase in sales compared to counties outside the aquifer. The primary spillover to non‐farm sectors was an increase in sales in the wholesale sector, perhaps driven by sales of agricultural‐related products. These findings provide evidence of coagglomeration incentives, where clusters of agricultural industries find it optimal to produce within the same region.