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The location quotient as an estimator of industrial concentration

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  • Billings, Stephen B.
  • Johnson, Erik B.

Abstract

We construct the location quotient (LQ) from a discrete data generating process and formally test its statistical properties. First, we show that the LQ is typically unbiased, but exhibits finite sample bias when assuming a Poisson distribution. Second, we determine the accuracy of statistical tests, which depends of both sample size as well as desired confidence levels. After constructing LQs using County Business Patterns (2000) data, we find improved accuracy in statistical tests when one increases spatial as well as industrial aggregation. Results show a clear tradeoff between precise statistical inference and power in detecting industrial concentration.

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  • Billings, Stephen B. & Johnson, Erik B., 2012. "The location quotient as an estimator of industrial concentration," Regional Science and Urban Economics, Elsevier, vol. 42(4), pages 642-647.
    • Handle: RePEc:eee:regeco:v:42:y:2012:i:4:p:642-647
    DOI: 10.1016/j.regsciurbeco.2012.03.003
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    More about this item

    Keywords

    Location quotient; Industrial concentration;

    JEL classification:

    • R12 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Size and Spatial Distributions of Regional Economic Activity; Interregional Trade (economic geography)

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