Long-run processes of geographical concentration and dispersion: Evidence from Germany

This paper analyzes the evolution of geographical concentration in the West German manufacturing, service, and knowledge-intensive sectors over a time period of 30 years. Drawing on detailed plant data of 187 industries from 1980 to 2010, we observe substantial concentration that is highest in manufacturing. Over time, there is a trend of deconcentration encompassing all economic activity. These patterns remain stable when accounting for both various sectoral and regional levels of aggregation and spatial dependencies between neighbouring regions. Investigating the role of plant births, expansions, contractions, and closures for the decline of concentration, we show that the underlying mechanisms differ across sectors. The dispersion of manufacturing industries is driven by contracting and closing plants within industrial agglomerations, whereas the dispersion of the service sector is fostered by the creation of new plants outside industrial agglomerations.