Establishment Growth in Small Cities and Towns

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Abstract
This article examines the effects of local industry agglomeration on establishment growth and employee earnings in Maine manufacturing and nonmanufacturing businesses. Empirical results reveal a positive relationship between an establishment’s 1996 to 1999 employment growth rate and the industry location quotient, measured at the two-digit standard industry classification (SIC) level in 129 municipalities and the three-digit SIC level in 16 counties. The results also indicate that industry agglomeration has a positive effect on the wages paid by an establishment relative to the U.S. industry average. In Maine municipalities, an increase in industry agglomeration is found to be a more powerful stimulant to establishment growth than a comparable increase in population size. On the other hand, an increase inmunicipality size has a relatively larger effect on establishment wages than a comparable increase in local industry agglomeration.

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