EXTERNALITIES AND INDUSTRIAL-DEVELOPMENT

Using panel data for five capital goods industries, this paper estimat es dynamic externalities. In contrast to previous studies, panel data allow separation of externalities from fixed effects and identificatio n of a lag structure. I find strong evidence of Marshall-Arrow-Romer ( MAR) (own industry, or localization) externalities. For Jacobs (urbani zation) externalities effects are smaller. In terms of lag structure, for MAR externalities the biggest effects are typically from several y ears ago, but die out after six years. For urbanization phenomena, eff ects persist to the end of the time horizon of the data-eight or nine years back. (C) 1997 Academic Press.