Productivity Improvement in the Specialized Industrial Clusters: The Case of the Japanese Silk-Reeling Industry

We examine two sources of productivity improvement in the specialized industrial clusters. Agglomeration improves the roductivity of each plant through positive externalities, shifting plant-level productivity distribution to the right. Selection expels less productive plants through competition, truncating distribution on the left. By analyzing the data of the early twentieth century Japanese silk-reeling industry, we find no evidence confirming a right shift in the distribution in clusters or that gglomeration promotes faster productivity growth. These findings imply that the plant-selection effect was the source of higher productivity in the Japanese silk-reeling clusters.