Sectoral spillovers and the price of land: A cost analysis

Under factor mobility, firms locate where local attributes enhance their productivity, but, in equilibrium, those gains are offset by higher local input prices. I study the variation in local input costs to identify production amenities across sectors in two ways. I estimate, first, hedonic rent and wage equations from individual households and workers and, second, local cost functions for different sectors across the US States and across Metropolitan Statistical Areas. I find evidence of externality gains from both a sector's and overall concentration of activity and from a better educated population. These gains are bigger in sectors with higher local land shares in the sample, finance and nondurable goods. (C) 2000 Elsevier Science B.V. All rights reserved.