Vertical Disintegration in Marshallian Industrial Districts

This paper uses a novel measure and detailed plant-level Portuguese data to reexamine the Marshallian hypothesis that specialization and the vertical disintegration of firms should be greater in areas where an industry concentrates. Our measure of firm specialization and vertical disintegration employs a Herfindhal index constructed with occupational shares for all workers within the firm. Controlling for firm size and sector of activity, we find that vertical disintegration is around three percent higher in areas where industries agglomerate. Sensitivity tests reveal that this positive relation is remarkably robust across different specifications.