Using a Melitz-style model of heterogeneous firms, Baldwin and Okubo (2006) recently presented a theoretical model in which self-sorting occurs and more productive factories choose to locate in more productive areas. The model suggests that firm-specific factors and regional factors affect each...

In this paper, geographical spillover potential is modeled and empirically examined using factory-level data from Japans Census of Manufactures. First, the efficiency of each factory is estimated using a non-parametric data envelopment analysis (DEA) model for each industry. Second, the...