The gains from agglomeration economies are believed to be highly localized. Using confidential Census plant-level data, we show that large industrial plant openingsraise the productivity not only of local plants but also of distant plants hundreds of milesaway, which belong to large multi-plant, multi-region firms that are exposed to the localproductivity spillover through one of their plants. This “global” productivity spilloverdoes not decay with distance and is stronger if plants are in industries that share knowledge with each other. To quantify the significance of firms’ plant-level networks for thepropagation and amplification of local productivity shocks, we estimate a quantitativespatial model in which plants of multi-region firms are linked through shared knowledge. Counterfactual exercises show that while large industrial plant openings have agreater local impact in less developed regions, the aggregate gains are greatest when theplants locate in well-developed regions, which are connected to other regions throughfirms’ plant-level (knowledge-sharing) networks.
