Intra-Firm Spillovers? The Stock and Flow Effects of Collocation

We study how intra-firm collocation — geographic clustering of business establishments owned by the same parent company — influences performance, decomposing the collocation effect into stocks and flows to learn about the mechanisms behind intra-firm agglomeration. Using Census micro data on the full population of U.S. hotels and restaurants from 1977-2007, we find that doubling the intensity of intra-firm collocation is associated with a productivity increase of about 2%. Further analyses reveal that a significant component of the productivity gains are attributable to stock effects, in the sense that productivity effects persist after an establishment ceases to be collocated. The results are consistent with the idea that proximity to other establishments owned by the same parent firm facilitates knowledge transfer, which has broad implications for firm strategy