Metropolitan externalities and manufacturing productivity and factor growth: 1977 to 1992

This study attempts to provide a unique set of additional empirical evidence on how local, metropolitan production externalities, and other economic and social factors, influence output growth through growth in metropolitan labor, capital, and productivity, respectively. The effects of these metropolitan production externalities may differ across labor and capital inputs. As such, this study attempts to identify which particular production externalities is associated with metropolitan growth in labor, capital, and productivity, respectively, rather than focusing on metropolitan output growth only.;Several different model specifications are analyzed using manufacturing industry and socio-economic data for a sample of 122 metropolitan areas over the period 1977 to 1992. Generally, the Ordinary Least Squares (OLS) and the Two-Stage Least Squares (2SLS) results indicate that urbanization economies, specialization, wages, and human capital have a positive effect on the growth of capital and labor. However, urbanization diseconomies and specialization are found to have a negative effect on the growth of labor productivity. It appears that an increase in metropolitan size, beyond some population threshold, retards the rate of labor productivity growth. A more diversified metropolitan economy, rather than a more specialized one, enhances labor productivity growth. Localization economies are found to be negatively related to the growth of capital-labor ratio, and positively related to the growth of labor productivity. The results of the study also indicate that government fiscal policies promote the growth of capital and labor, but they generally have a negligible effect on the rate of growth of labor productivity. And, the growth of capital-labor ratio, firm size, and the female proportion of the workforce play an important role in enhancing labor productivity growth. Finally, there is strong evidence of inter-metropolitan convergence of the labor productivity and the capital-labor ratio. This indicates that there is a "catching-up" process existing among metropolitan areas with low levels of labor productivity and capital-labor ratio, respectively.