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Industrial Location and Protection: The Political and Economic Geography of U.S. Nontariff Barriers Author(s): Marc L., Vol. 43, No. 4 (Oct., 1999), pp. 1028-1050 Published b y : Midwest Political Science Association Stable URL: http://www.jstor.org/stable/2991816 . Accessed: 31/10/2012 15:22 Your use of the JSTOR archive indicates y our acce p tance of the Terms & Conditions of Use, available at . http://www.jstor.org/page/info/about/policies/terms.jsp . JSTOR is a not-for-profit service that helps scholars, researchers, and students discover, use, and build upon a wide range of content in a trusted digital archive. We use information technology and tools to increase productivity and facilitate new forms of scholarship. For more information about JSTOR, please contact support@jstor.org. . Midwest Political Science Association is collaborating with JSTOR to digitize, preserve and extend access to American Journal of Political Science. http://www.jstor.org " id="pdf-obj-0-2" src="pdf-obj-0-2.jpg">

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Industrial Location and Protection: The Political and Economic Geography of U.S. Nontariff Barriers Author(s): Marc L., Vol. 43, No. 4 (Oct., 1999), pp. 1028-1050 Published b y : Midwest Political Science Association Stable URL: http://www.jstor.org/stable/2991816 . Accessed: 31/10/2012 15:22 Your use of the JSTOR archive indicates y our acce p tance of the Terms & Conditions of Use, available at . http://www.jstor.org/page/info/about/policies/terms.jsp . JSTOR is a not-for-profit service that helps scholars, researchers, and students discover, use, and build upon a wide range of content in a trusted digital archive. We use information technology and tools to increase productivity and facilitate new forms of scholarship. For more information about JSTOR, please contact support@jstor.org. . Midwest Political Science Association is collaborating with JSTOR to digitize, preserve and extend access to American Journal of Political Science. http://www.jstor.org " id="pdf-obj-0-39" src="pdf-obj-0-39.jpg">

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IndustrialLocation and Protection:

ThePolitical and EconomicGeography of U.S. NontariJfBarriers

Marc L. Busch, Harvard University

Eric Reinhardt,Emory University

The debateover the relationship between the location of industryand theincidence of

importbarriers has beenmiscast. Three problems call intoquestion the findings reported

in theendogenous protection literature. First, geographic concentration is widely used as

a proxyfor political concentration (i.e., thespread of industryacross political districts),

althoughthese two variables are conceptuallyand empiricallydistinct. Second, extant

measuresof geographicconcentration ignore the spatial relationship among units (e.g.,

countiesor states)in which"lumpy" industries make their home, thereby often failing to

detectconcentration where it exists. Third, in thosefew studies in whichpolitical concen-

trationreceives any direct attention at all, nonmonotoniceffects and interaction terms are

seldomtested, despite their grounding in theoriesof interestgroup politics more gener-

ally.This articleaddresses all threeproblems. The resultsindicate that geographically

concentratedbut politically dispersed industries are theones mostlikely to receiverelief

fromimports, although a handfulof verylarge industries benefit from being politically

concentrated. The articlethus reveals how to reconcilethe two competing hypotheses

aroundwhich one of endogenousprotection theory's most enduring debates has taken

shape.

One of themost enduring debates in theendogenous protection litera- tureconcerns the relationship between the location of industryand theinci- dence of importbarriers. This debateis widelyframed around two compet- ing hypotheses:the firstposits that geographically concentrated industries are morelikely to act collectivelyin lobbyingfor protection, giving them a loud voice in tradepolitics; the second holds thatgeographically dispersed industriesare morelikely to have broadpolitical representation (under cer- tainelectoral rules), giving them a greaternumber of voices in tradepolitics. Despite a considerableamount of empiricaltesting, however, the jury is still out on whichof thesehypotheses correctly signs one of endogenousprotec-

We thankJohn Blodgett of CIESIN and AndrewHait of theCensus Bureau, as well as JamesAlt,

JamesAnderson, Lawrence Broz, Rick Doner,Jeff Frieden, Richard Friman, John Iceland, Lisa

Martin,Fiona McGillivray,Patrick Moriarty, Michael Rich, Ron Rogowski,B. PeterRosendorff,

Ken Scheve,Cheryl Schonhardt-Bailey, Ed Schwartz,Mike Tomz, Richard Tucker, and thePolitical

EconomyLunch Group at HarvardUniversity for helpful comments. All remainingshortcomings

are,of course, our own.

AmericanJournal of Political Science, Vol. 43, No. 4, October1999, Pp. 1028-1050(D1999 by the

MidwestPolitical Science Association

INDUSTRIAL LOCATION AND PROTECTION

1029

tiontheory's most salient variables. We arguethat the findings in thelitera-

tureare difficult tointerpret, given the tendency to conflate geographic with

political concentration, thelatter measuring the spread of an industryacross

electoraldistricts. We disentangle these variables in explaining the pattern of

nontariffbarrier (NTB) protectionfor four-digit U.S. manufacturing indus-

triesin 1990.We findthat geographically concentrated but politically dis-

persedindustries are more likely to receiverelief from imports, although a

handfulof very large industries benefit from being politically concentrated.

Bothsides of the debate are thus partly right, although not for reasons that

eitherside could explain.

In additionto letting the political concentration variable testify for itself,

we createa newmeasure of geographic concentration. Existing studies of

economicgeography rely upon measures that suffer from what White terms

the"checkerboard problem" (1983, 1010-1011), in thatthey fail to account

forthe spatial relationship among geographic units. Imagine, for example,

thatthe squares on a checkerboardare parcels of landand that industry is

locatedonly on theblack squares and thus quite dispersed across the board.

Now imaginea secondcheckerboard on whichthe squares are sortedby

color,so thatall theblack squares with industry are contiguous, as areall the

redsquares without industry. Surprisingly, most measures of geographic

concentrationcannot distinguish between these two checkerboards, even

thoughindustry is invariably more "lumpy" on thelatter. By neglectingspa-

tialrelationships among the geographic units in this manner, existing studies

thusfail to test the hypothesis that close physical proximity lowers the costs

oforganizing and monitoring anindustry's efforts to "turn out the vote." Our

measurecorrects the checkerboard problem, permitting a more direct test of

whethergeographically concentrated industries are better able to overcome

thecollective action problem inherent in lobbying for protection.

Finally,we examineseveral alternative

specifications

ofthe relationship

betweenthe location of industry and the incidence of barriers to trade. Spe-

cifically,we testthe hypothesis that moderate political concentration maxi-

mizesprotection, as compared to lesser or greater levels of political concen-

tration. We also consider the hypothesis that the interaction between political

concentrationand industry size is thekey to predicting which industries are

mostlikely to receiverelief from imports (Salamon and Siegfried1977;

Snyder1989). Studies including political concentration typically fail to in-

cludethis interaction term (but see McGillivray1997), one deemedto be

importantin theoriesof interestgroup politics more generally (Cameron,

Epstein,and O'Halloran 1996). Our article provides the first evidence bear-

ingon thesehypotheses while simultaneously distinguishing political from

geographicconcentration and resolving the checkerboard problem.

  • 1030 Marc L. Buschand Eric Reinhardt

1. THE LITERATURE

Endogenousprotection theory has longsought to teaseout the political

implicationsof economicgeography. Most of theliterature begins with

Olson's(1971) puzzle about collective action. Since protection often benefits

all ofthe firms in an industryregardless of whether they individually lobby,

firmshave a strongincentive to free ride on each other's efforts. The result is

a suboptimal level of political activity on thepart of the industry as a whole

(Olson1971, 35, 44-45). The "closegroup" hypothesis, as we call it,posits

thattransaction costs incurred in organizingand monitoring effective lobby-

ingdecline with close physical proximity, lessening the incentive for firms to

freeride (Pincus 1975; Lavergne1983; Hansen 1990; Trefler1993).1

Schonhardt-Bailey(1991, 38), forinstance, contends that communications

and transportationcosts are less onerousfor industries concentrated in a

givenregion, enabling these firms to establish closer contacts and keep better

tabson eachother's efforts to turnout the vote. Although these costs have

surelydeclined in the "information age," the density of contacts among busi-

nessgroups is stillgreatest on a local scale.Indeed, because these regional

clustersare more in tunewith the concerns of suppliers and customers, they

arebetter able to articulate their demands than are dispersed industries (Por-

ter1990, 154-159). Those who subscribe to this view thus expect a positive

relationshipbetween geographic concentration and import barriers.

A competinghypothesis posits that because geographically dispersed

industrieshave broad political representation, their demands for protection

are morelikely to be granted(Pincus 1975; Caves 1976,284; Estyand

Caves 1983).As Rogowski(1997) explains,this "dispersed group" hypoth-

esis obtainswhere the electorate votes across smaller single-member dis-

tricts,but not where the electorate votes as a nationalconstituency orwhere

purerproportional representation helps to smooth out the vote. In theUnited

States,where this hypothesis is on solidfooting, the expectation is that geo-

graphicallydispersed industries are morelikely to receiveprotection be-

cause of theirgreater political representation in Congress(McGillivray

1997).The dispersedgroup hypothesis, in contrastto theclose group argu-

ment,focuses on thedynamics of representationin political institutions

ratherthan the intensity of protectionist pressures on thepart of industrial

constituents.

Those who subscribe to thisview predict a negativerelation-

shipbetween geographic concentration and import barriers.

How do thesehypotheses stack up inlight of the evidence? The empiri-

cal literaturesheds surprisingly

little light on howto signthe geographic

'This pointis quitedistinct from Olson's (1971) argumentabout group size, even though both

variablesspeak to thecapacity to organizeand monitor collective action. Smaller groups are not nec-

essarilymore proximate, and vice-versa,a pointwhich is notexplicit in Olson (1971, see 46-47).

INDUSTRIAL LOCATION AND PROTECTION

1031

concentrationvariable or even whether this variable merits much attention in

thefirst place. Some evidence supports the close group hypothesis. For ex-

ample,in a studyof administeredprotection in theUnited States, Hansen

(1990,36) reportsthat industries with operations in fewerstates were more

likelyto havethe International Trade Commission rule in theirfavor on es-

cape clause,anti-dumping, and countervailing duty filings between 1974

and 1985.Milner (1997, 99) similarlyshows that trade barrier reductions in

theNorth American Free Trade Agreement (NAFTA) were smaller for geo-

graphicallyconcentrated industries. Along these same lines, Moore (1996,

23-24,30-31) arguesthat the declining political influence of the U.S. steel

industryin the1990s owed largely to theincreasing geographic dispersion

ofthis industry. Finally, in a studyof corporate political action committees,

Grier,Munger, and Roberts (1994, 918) findthat geographically concen-

tratedindustries spent considerably less oncampaign contributions between

1978and 1986,likely because their close physical proximity bolstered their

abilityto voteas a blocand thus to directlyinfluence elected officials look-

ingfor returns at the ballot box.

Otherevidence favors the dispersed group hypothesis. For example,

in his seminalstudy of theU.S. TariffAct of 1824,Pincus (1975) findsa

stronglynegative relationship between geographic concentration and protec-

tion.Similarly, Ray (1981, 116-117)demonstrates that geographic disper-

sion significantlyincreased NTB protectionfor U.S. industriesin 1970,

muchas Lopezand Pagoulatos (1996,244) find in the case of forty-four U.S.

foodand tobacco manufacturing industries in 1987.Finally, in an important

studyof thefree trade lobby in 19thcentury Britain, Schonhardt-Bailey

(1991)reports that geographic dispersion of export industries most certainly

gavethe pro-liberalization side a greaternumber of voices in tradepolitics.

However,she also findsthat the key to thesuccess of the pro-liberalization

sidewas thatit had a veryloud voice in cottontextiles, the nation's "core"

exportindustry, which was, by contrast, highly geographically concentrated.

Stillother studies uncover little reason to putmuch stock in eitherhy-

pothesis.For example, Caves' (1976,294) articleon Canada'stariff policy

andTrefler's (1993, 145) analysis of U.S. NTBs finda positivebut insignifi-

cantrelationship between geographic concentration and protection. Con-

versely,Salamon and Siegfried (1977, 1038) and Esty and Caves (1983, 35)

showthat the relationship between geographic concentration and several

measuresof thepolitical influence of industryis negativebut more often

thannot insignificant. Reflecting on his own mixed results, Lavergne (1983,

154)concludes a widelycited study by insisting that the geographic concen-

trationvariable most likely "has no trueimpact at all."

Threeproblems make it difficultto interpretthe results reported in the

literature. First, each of the studies above conflates political and economic

  • 1032 MarcL. Buschand Eric Reinhardt

geography. This is morethan a littletroubling, since the close group and dis-

persedgroup hypotheses tap quite distinct aspects of industrial location. Af-

terall, an industryclustered within a givenregion may be dispersedacross

electoraldistricts, just as a geographicallydispersed industry may be politi-

callyconcentrated. For example, the "bolts, nuts, washers, and rivets" indus-

try(SIC 3452)is geographicallyconcentrated inthe Midwest. Yet, since it is

locatedin a heavilypopulated area with accordingly small electoral districts,

thisindustry is spreadrelatively evenly across 100 U.S. Houseconstituen-

cies.On theother extreme, "ship building and repairing" (SIC 3731) is geo-

graphicallydispersed along the Atlantic, Gulf, and Pacific coastlines, but 80

percentof its national employment is concentrated injust twenty-five House

districts.2These examples reveal that geographic concentration is a poor

proxyfor political concentration and vice-versa. By conflatingthe two con-

cepts,the literature has confused the issue.

Second,most measures of geographicconcentration are plaguedby

White'scheckerboard problem: they ignore the spatial relationship among

geographicunits. This underminestests of theclose grouphypothesis,

whichafter all is basedon thephysical proximity of group members. To il-

lustratewhat is at stake,consider the "broadwoven fabric mills, cotton"

(SIC 2211) and"instruments to measure electricity" (SIC 3825) industries.

The conventionalHerfindahl index-which ignores spatial proximity-

ranksthese industries almost identically in termsof theirgeographic con-

centration, suggesting that this variable would offer little insight into any

differences in theirlevels of protection. Over 75 percentof 1987national

employmentin thebroadwoven fabric mills industry (54,500 workers) is

locatedwithin a 200 mileradius of Clemson, SC. Yetless than50 percent

(41,846) of thenation's workforce in theother industry lies within1200

milesof Centralia,KS, and therest is evenlyspread up and downthe

coasts.Strikingly, ofthe two industries, only broadwoven fabric mills are

protected. But the critical difference between these two industries in terms

of geographicconcentration cannot be detectedby methodsused in exist-

ingstudies.

Third,where political concentration receives any attention atall, the ten-

dencyis totest only for a linearrelationship between this variable and protec-

tion.However, recent work on theoptimal dispersion of interest groups and

electoralredistricting suggests that the relationship might instead be non-

monotonic(Cameron, Epstein, and O'Halloran 1996; Rogowski 1997). Fur-

ther,political concentration may interact with industry size (McGillivray

2Readerscan view maps of employmentin these industriesat http://userwww.service.

emory.edu/-erein/research/geocon-appendix.pdf.

INDUSTRIAL LOCATION AND PROTECTION

1033

1997), since largeindustries might benefit from being heavily represented in a givenelectoral district, even if smallerindustries would do betterif they weremore evenly dispersed across districts (Snyder 1989). We testboth alter- nativehypotheses.

2. THE MODEL

This sectionsets out themodel we use to explainthe incidence of NTBs across a sampleof 363 four-digitU.S. manufacturingindustries in 1990.3

2.1 DependentVariable

Our dependentvariable is a measureof NTBs thatreports the incidence ratherthan the intensity of protection.It includesonly "hardcore" barriers, such as bindingquotas, tariffquotas, voluntaryexport restraints, counter- vailingor antidumpingduties, and outrightprohibitions (Anderson 1996, 3, 13). The dummyvariable NTB is measuredin 1990 and is scored 1 ifat least fiftypercent of thefour-digit Harmonized Commodity Description and Cod- ing System(HS) codes matchinga givenfour-digit Standard Industrial Clas- sification(SIC) code are coveredby such nontariffbarriers (0 otherwise).4 Our measureof protectionfocuses exclusively on NTBs and not tariffs fortwo relatedreasons. Specifically,given the substantiallimits placed on tariffsby theGeneral Agreement on Tariffsand Trade(GATT) in thisperiod, U.S. protectionwas morelikely to take theform of NTBs, whichare esti- matedto have impededimports far more than tariffs (Marvel and Ray 1983, 190-19 1; Trefler1993, 154; Lee and Swagel 1997,374). Also, as Ray (1981, 116) has shown,whereas tariffs significantly affect NTBs, NTBs have little influenceon tarifflevels. Thus, in line withthe majorityof cross-industry studiesof post-KennedyRound tradebarriers, we proceedwith tariffs as a right-handside variable(see below) and NTB as ourdependent variable.

3Thesample includes all 459 four-digitmanufacturing categories in the 1987 StandardIndus-

trialClassification (SIC) list,minus missing data (due almostentirely to thetrade flow and trade

policyvariables described below). It is publiclyavailable at http://userwww.service.emory.edu/

-erein/research/#geocon. Expansion of thesample is constrainedby lack of NTB dataacross time,

limitedsubnational geographic employment data for other countries, and low-quality or missingin-

dustryconcordances across time and countries.

4Whethera four-digit HS code was coveredby an NTB in 1990 was determinedby Anderson

(1996), as containedin thefiles "t_us_fin.asc"

and "t_us_int.asc"

from Feenstra, Lipsey, and Bowen

(1997). Anderson'sNTB measurein turnis an aggregatecomputed from data at thesix-digit HS

level,originally obtained from the authoritative

UNCTAD TradeInformation

System (TRAINS) da-

tabase(Feenstra, Lipsey, and Bowen 1997,36-37). The HS-SIC concordancewas obtainedin file

"concord.dbf'from U.S. Bureauof theCensus (1994b).

  • 1034 MarcL. Buschand Eric Reinhardt

2.2 IndependentVariables

Geographicconcentration

We quantifygeographic concentration using GEOCON, a decreasing

functionof the distance from each employeeto thenational "centroid," or

midpoint,for a givenindustry. GEOCON is basedon highlyaccurate esti-

matesof county-industry

industriesas i, i E { 1, 2,

. . .

employment

data for 1987.5 Specifically, denote

. .

., min, and the

, n}, countiesas k, k E { 1, 2,

numberof jobs in industryi in countyk as jik. The latitudeand longitude

of the employment-weighted centroid of countyk is the vectorPk =

(plat, plong) .6 The nationalemployment-weighted

industry centroid, calcu-

lated fromcounty-industry employment data, is thevector ci = (ctat,clong),

 

m

2

where ci =-

 

m

Pkjik

m

. The distancefrom county centroid Pk to nationalin-

jik

k=1

dustrycentroid ci is designated dik, where

dik = 3949.99* arccos(sin( |cfatl arctan(l)/45)* sin( |platlarctan(l)/45) +

cos( |ciatarctan(1)/45) * cos( platlarctan(1)/45) cos(( Ci.n arctan(1)/45)-

(plong arctan(l)/45))) .7

Geographicconcentration

can then be expressedas follows:

GEOCONi=

m

Xf(dik )ik

k=

m

m

jik

k=1

, wheref(dik) =e-des

8

5Officialemployment figures for the detailed geography and industryunits used here are par-

tiallyunavailable for anonymity reasons. Accordingly we arecompelled to estimatecounty-industry

employmentinstead, using a procedure(McGillivray 1997, 594) whose outputcorrelates highly

withnonmissing official figures (r = 0.946). See http://userwww.service.emory.edu/-erein/research

geocon-appendix.pdf for more information.

6Weuse 1990 populationweights and countyborder definitions (U.S. Bureauof theCensus

andConsortium for International Earth Science Information Network [CIESIN] 1998)because 1987

valuesare unavailable.

7Wethank John Blodgett, CIESIN, forthis distance expression.

81nour case, s = 631.43,or themean distance from county centroid to national(nonindustry-

specific)centroid, chosen arbitrarily to scale theindex so thatextreme distances do notreceive un-

INDUSTRIAL LOCATION AND PROTECTION

1035

Severalcharacteristics

ofGEOCON meritattention. First, this measure

explicitlyrecognizes the spatial relationship among geographic units, not

justthe distribution

oftheir internal characteristics,

thus correcting

White's

checkerboardproblem. Second, GEOCON is calculatedfrom much less ag-

gregatedgeographical units (counties versus states) and industry definitions

(four-digitinstead of three-digit) than are mostother studies' measures

(Krugman1991, 57-58). Third, GEOCON contains no missing industry data

foreach of the component geographical units, an importantsource of bias in

otherstudies (Krugman 1991, 57). Forthese reasons, especially the first,

GEOCON is relativelyuncorrelated with standard Gini- and Herfindahl-

basedmeasures, instead constituting a distinct-and, we argue,superior-

conceptof geographic concentration.9

Politicalconcentration

Thevariable POLCON measuresthe concentration

ofan industry'sem-

ploymentacross electoral districts rather than economic geography. It also

differsfrom GEOCON in thatit is basedsolely on theinternal characteris-

ticsof districts and not on thespatial relationships

among them. The politi-

cal geographyused in constructingPOLCON is theHouse districtin the

102ndCongress.10 POLCON is a Herflndahl index of district employment

due weight.The use of theexponent of negative distance, and notlinear distance, makes GEOCON

a measureof concentration rather than dispersion and is suggestedby White (1983, 1013).However,

theresults reported below are all substantivelyidentical if GEOCON is alternativelycalculated with

ftdik) = dik. Hawaii andAlaska are excludedin all calculationsfor this variable, although, as itturns

out,our results are notat all sensitiveto theirinclusion.

9TheHerfindahl index of geographicconcentration is simplythe sum of thesquares of the

countyshares of nationalemployment in thatindustry (Pearce 1992, 184). The Ginicoefficient is

G. =1 +!m

m~

(

riJkji,)

ik

where k is therank of county k's employmentwhen the counties

k=1

are sortedin decreasingorder of jobs (Pearce 1992, 172). The correlationof GEOCON withgeo-

graphicconcentration indexes using Herfindahl, Gini, and Krugman's (1991, 55-56) alternativeGini

formulas,respectively, is a mere0.311, 0.263, and 0.245 (N = 453). We shouldnote that GEOCON

does, however,fail to discriminateproperly between highly dispersed industries and ones concen-

tratedin onlya fewvery distant locations. White's (1983, 1012,Equation 4) alternativemeasure is

superiorto GEOCON on thisscore, but it is prohibitivelyexpensive to computein ourcase. For a

randomsample of seventeenindustries, though, the correlationbetween White's measure and

GEOCON (usingthe exponent of negative distance) is r = 0.871 (r = 0.978 ifboth are computed us-

inglinear distance instead). In practice,then, few industries in ourdataset exhibit the one kindof

geographicconcentration that GEOCON onlyweakly detects. For moreinformation, see http://

userwww.service.emory.edu/-erein/research/geocon-appendix.pdf.

I'To theextent that legislators factored their constituencies' preferences into their decision

makingon tradepolicy in 1990,they presumably were most concerned about the constituencies they

wereaiming to win in the1990 primary and general elections, which were 102nd Congress districts.

  • 1036 MarcL. Buschand Eric Reinhardt

fora givenindustry. Specifically, POLCONi =

Iih /iih)0

whereiih is

the numberof jobs in industryi in House districth. To get Jih, we started

withthe county-industry employment estimates (Jik) used forGEOCON and

matchedcounties to House districtsusing area allocationratios. II

2.3 ControlVariables

Industrialconcentration

The variableINDCON measuresthe concentration of domesticmarket

shareacross firms in a givenindustry. Specifically, INDCON is a Herfindahl

index of the dollar value of the 1987 domesticshipments of the industry's

fiftylargest companies. 12 The relationshipbetween INDCON and protection

is widelydebated. The morefamiliar hypothesis holds thatbecause indus-

trialconcentration means a smallnumber of significantfirms, higher values

on thisvariable imply lower transactionscosts and greaterrents to be had

fromimport relief, such thatINDCON shouldbe positivelyrelated to NTB

(Marveland Ray 1983; Hansen 1990; Trefler1993, 141; Grier,Munger, and

Roberts1994; Lopez and Pagoulatos 1996, 239). The lesserknown hypoth-

esis holds,on thecontrary, that industrial concentration attracts the attention

of regulatorsbent on increasingcompetition or brandsthe industry as unde-

servingof importrelief because of existingrents, such that INDCON should

be negativelyrelated to NTB (Salamon and Siegfried1977, 1038; Ray 1981,

108, 116; Esty and Caves 1983, 30). The evidence has not consistently

supportedeither hypothesis, more often than not revealingan insignificant

relationshipbetween industrial concentration and protection(Caves 1976,

286-287; Hansen 1990, 35-36). This maybe partlybecause industrialcon-

centrationis oftenused-as a proxyfor geographic and politicalconcentra-

tion. Our interestlies in whetherindustrial concentration exerts a more

transparenteffect when explicitly controlling for those other concentration

variables.

Industrysize

The variableSIZE is nationalemployment by industryin 1989, in tens

of thousands.13The politicalinfluence of an industryis widelypredicted to

IISource: U.S. Bureauof the Census and CIESIN (1998). POLCON couldalternatively be cal-

culatedusing Senate districts(i.e., states)instead of House districts,or witha Gini insteadof a

Herfindahlindex (see note9). As itturns out, however, with no suchvariant of POLCON do ourre-

sultsdiffer substantively from those presented.

12Thisoriginal Herfindahl index is dividedby one thousandfor ease ofpresentation of results.

Source:U.S. Bureauof the Census (1998).

13U.S.Bureau of the Census (1997), file"asm_i2.dbf' (variable emp).

INDUSTRIAL LOCATION AND PROTECTION

1037

increasewith its size because

greateremployment means morevotes, thus

improvingthe odds thatan industry'sdemands for protection will be heard

by officialsvying for (re)election (Milner 1988, 259-260; Hansen 1990, 35;

Lee and Swagel 1997, 378-379; butsee Estyand Caves 1983; Trefler1993,

145). Alternatively,

SIZE mightbe negativelyrelated to protection,reducing

theworkforce's ability to mobilizecollectively or by raisingthe industry's

profilein theeye's of consumerswho oppose protection(Caves 1976, 284;

Salamon and Siegfried1977, 1032).

Tradeposition

We gauge an industry'strade position with the variableIMPEXP, the

ratio of importpenetration to exportdependence, based on 1989 data.14

IMPEXP taps theextent to whichan industryis threatenedmore by import

penetrationthan it gainsthrough exports. Higher values ofIMPEXP are thus

predictedto increasethe likelihood of protection.

Hourlywage

WAGEHOURmeasures the average hourly wage of productionworkers

by industryin 1989.15High wage industriesare thosewith the greatest pro-

ductivityand thuscomparative advantage, so WAGEHOUR is likelyto be

negativelyrelated to NTB (Lee and Swagel 1997, 378-379).

Tariff

The variable TARIFF is the trade-weightedaverage nominaltariff in

  • 1990 forall four-digitHS lines matchinga givenfour-digit SIC industry.16

Many studies reportthat existing tarifflevels are positivelyrelated to

NTBs, implyingthat these are complementaryforms of protection(Ray

1981; Marvel and Ray 1983, 195-196; Lee and Swagel 1997, 379). Other

studiesfind, however, that prior tariffs are negativelyrelated to NTBs, sug-

gestingthat these are insteadsubstitute forms of protection(Mansfield and

Busch 1995). Evidence favoringeither hypothesis is importantin evaluat-

ing whetherNTBs are "old wine in new bottles"or a new threatto trade

liberalization.

14Noindustry in oursample has zeroexport dependence, so IMPEXP is definedfor all cases.

See McGillivray(1997, 597) fora similarspecification. The centralresults of thearticle are no dif-

ferentif import penetration and export dependence together are substituted for IMPEXP in themod-

els reportedin Table 1. Importpenetration is imports(for domestic consumption only) over imports

plus domesticshipments. Export dependence is exports(of domesticproduction only) over exports

plus domesticshipments. Shipments data are fromU.S. Bureau of the Census (1997), file

"asm_i2.dbf'(variable value). Importsdata are fromU.S. Bureau of the Census (1994b), file

"imp_comm.dbf' (variable val_con_89). Export data from U.S. Bureauof theCensus (1994a), file

"exp_comm.dbf' (variable value_89).

15U.S.Bureau of the Census (1997), file"asm_i2.dbf7' (variables wages and hours).

16Forthe source, see note4 above.

  • 1038 MarcL. Buschand Eric Reinhardt

Descriptivestatistics on all of thevariables are reportedin Table 1.17

We estimatethe following probit model:

Pr(NTBi

= 1) = F(fo

+ fIGEOCONi

 

+ 32INDCON1

+ P3POLCON1

+

f4SIZEi

+ sTARIFi

+

6IMPEXPi

+ 7WAGEHOUR

 

Model II

Model III

 

+ rPOLCON72

+ IgSIZEi

 

* POLCONi),

wherei E [1,

., 459] (industries),and F(-) is the cumulativestandard

normaldistribution.18 All righthand side variables,except TARIFF, are mea-

suredat least one yearbefore 1990 to avoid simultaneity. The expectedef-

fectof GEOCON and IMPEXPon NTB is positive;of WAGEHOUR,nega-

tive; and of INDCON, SIZE, and TARIFF,either positive or negative.In

Models I-III, we includeall thosevariables while varyingthe specification

of theeffect of POLCON on NTB. Model I testsfor the positive monotonic

relationshipbetween POLCON and NTB thatis widelyhypothesized in the

literature.Model II adds the square of POLCON to permita nonmonotonic

(i.e., n-shaped) relationship,as positedin the literatureon interestgroup

politics more generally(see Cameron,Epstein, and O'Halloran 1996). In

Model III, we testfor an interactionbetween POLCON and SIZE, enabling

us to evaluatewhether the electoral clout of industriesconcentrated in rela-

tivelyfew political districts varies with the number of votestheir workforces

represent(Snyder 1989).

3. RESULTS

The resultsfor Models I-III are reportedin Table 1.19Overall, the mod-

els performquite well. The pseudo R2s rangebetween 0.44 and 0.46. Tests

reveal no problemswith collinearity.20 Heteroskedasticity tests are border-

line positivein Models I and III and positivein Model II, so in Table 1 we

17Notablebivariate correlations are as follows:GEOCON withPOLCON, r = 0.344 (N = 363),

withINDCON, 0.139, withIMPEXP, 0.030, and withSIZE, -0.102; POLCON withINDCON,

0.479, withSIZE, -0.190, and withIMPEXP, -0.009; INDCON withSIZE, -0.023, and with

IMPEXP,-0.040; SIZE withIMPEXP, -0.023.

18Tolimit collinearity in Models II and III

withoutaffecting the estimates for the other vari-

ables,we "centered"POLCON by subtracting0.0921 (its95th percentile value).

19Thesemodels were estimated with the probit, robust command in Stata5.0. Model specifi-

cationtests also drewon thehetprob and regprocedures.

20Specifically, OLS regressionof each independentvariable on all theothers yields R2 values

thataverage 0.221, 0.259, and 0.282 forthe three models, respectively, and whichfor no variables

aregreater than 0.506. ("Max collinearityR2" inTable 1 liststhe maximum such R2 forthe variables

in therespective model.) Of all thevariables, POLCON, INDCON, and WAGEHOURexhibit the

greatestcollinearity, and (with one exceptionnoted below) the estimates for these variables are quite

stableto theinclusion or exclusionof theothers.

INDUSTRIAL LOCATION AND PROTECTION

1039

Table 1. Estimatesof Three Probit Models of NTBs

(US, 4-DigitSIC Industries,1990) ~~~~Mean iSI). Min-Ma Model I Model Monotonicin Non-monotonic 0.1 10*0.3149 POLCON in POLCON
(US, 4-DigitSIC Industries,1990)
~~~~Mean
iSI).
Min-Ma
Model I
Model
Monotonicin Non-monotonic
0.1 10*0.3149
POLCON
in POLCON
0-1
Prob (NTBi =1)
-0.468
-0.514
0.704:t0.629,
JNDCONi
(0.011)
(0.701)
0.00432094
POLCON_ Z
-2
0.029?0.11,
TARIFF
119.810
0.003?0.040,
(3.243)
(3.243)
(4.242)
(4.242)
_
~~~~0.003-1.357
~~~0.002-1.387
IMPZEi
0.0361
0.030*
0.4.09?2.162,
(0.016)
(0.016)
0.0048.859
TARLCO Ni
13.9-*
139.8419
0
0.053
.0410,
(3.34)
~(32.240)
0.O-0.1244
POLCONI
-2.147
0.050
0.07?0.2041,
IMEXPi
0.0312
0.030S
4.29?26.162,
(0.016)
(0.016)
0.01-486.95
Maxcllin(2a.y0)20.4240
0.
L retrcte)
(12.9314
(15.3130
S.
POLCON,SIZE, an POCN
SIZE;01-aldpfralohr.Decitv1ttsisd
o incopo
rate0thecentering6for1POLCO
used0in0Model4.97-17.870
LL
(unrestricted).070)398
170.149
RobstGEsOUin paenhee.
12*deoe
0.05,
-
* p10.1.2-aiedp?orINCO,
0ARF,
% coffectlypred.
94.2
93.9
Pseudo-w-
0.441
0.443_
Max collinearity R2
0.400
0.506

RobustSEs in parentheses. * denotesp < 0.05, ** p < 0.01. 2-tailedp forINDCON, TARIFF,

POLCON, SIZE, andPOLCON*SIZE; 1-tailed p forall others.Descriptive statistics do not incorpo-

ratethe centering forPOLCON usedin ModelsII-III.

  • 1040 MarcL. Buschand Eric Reinhardt

reportrobust standard errors, which are consistenteven underheteroske-

dasticity.21

The article's firstobjective was to disentanglepolitical fromgeo-

graphicconcentration. The dividendsto doingso are clear,although Table 1

revealsthat the relationship between POLCON and NTB is not as straight-

forwardas theliterature might have it. Take Model I, in whichPOLCON is

testedby itself.Here, the variableis negativelysigned in keepingwith the

dispersion hypothesis,but the coefficientis insignificant.In Model II,

whichincludes POLCON as well as POLCON2, thereis no evidence of a

m-shapedeffect: both coefficients are insignificant. In Model III, whichin-

cludes an interactionbetween POLCON and SIZE, we findnot only a posi-

tiveand highlystatistically significant relationship between this interaction

term and NTB (p < 0.01), but also a stronglynegative coefficienton

POLCON by itself(p < 0.05). This findinglends supportto the dispersion

hypothesis,qualified by theresult for POLCON*SIZE, in thatpolitical con-

centrationis notas detrimentalfor larger industries as it is

forsmaller ones.

Noticefurther that the relationships we observein Models

1-111are insensi-

tiveto alternativemeasures of POLCON.22

Considerthe substantivesignificance of POLCON. In general,it has a

modesteffect on NTBs, except in the case of a handfulof unusuallylarge

industries.Figure 1 depictsthe (Model III) predictedprobability that NTB =

1, holdingall othervariables at theirmeans, as POLCON and SIZE vary

fromtheir 10th percentile to 90thpercentile values in the sample.Over this

range,POLCON can changethe probability of an NTB by only2.2 percent

whenSIZE is at its mean,and SIZE, 9.8 percent.23Both POLCON and SIZE

have skewed distributions,which complicatesthe interpretationof these

2'A heteroskedasticprobit model with variance function conditioned on all independentvari-

ables revealsborderline or significantheteroskedasticity in GEOCON and IMPEXP. (Waldtests of

thehypothesis that these two variables' variance coefficients equal zero yieldp = 0.064,p = 0.015,

andp = 0.060,respectively, for Models 1-111, while failing to rejectthe hypothesis that the variance

coefficientsof the other variables are jointly equal to zero.)Re-estimated models with variance func-

tionsconditioned only on thesetwo variables do notundermine the statistically significant results re-

portedin Table 1 forGEOCON.

22Inparticular, we calculatedHerfindahl and Gini indexes using both Senate (state) and House

districtunits. All suchvariants of POLCON yieldinsignificant results in Models I and II and posi-

tiveand significantinteractions with SIZE in Model III. It is also worthnoting that the POLCON re-

sultsare reasonably robust to alterationsin thecoding of thedependent variable. That is, ifwe use a

continuousversion of NTB insteadof thedummy variable (and use OLS), or ifwe makethe thresh-

old forthe NTB dummy0, 10, 20, 25, 30, 40, 90, or 100 percentinstead of 50 percent,the findings

fromModels I-III remainunchanged.

23OverPOLCON's entirerange, with mean SIZE, themaximum change in theprobability that

INDUSTRIAL LOCATION AND PROTECTION

1041

Figure1. Impactof Political Concentration (POLCON) on Predicted

Probabilityof NTBs, Conditionalon IndustryEmployment (SIZE)

POLOO 0.08 0. 0.0200406 0.15 0.1 0.05 0 250 0001200
POLOO
0.08
0.
0.0200406
0.15
0.1
0.05
0
250 0001200

results.24To facilitateinterpretation

we can calculate "tipping values"for

bothPOLCON andSIZE, beyond which the marginal effect of the other vari-

able is positive.25 Increasesin SIZE decreaseNTBs for politicalconcentra-

tionvalues up to0.076, which amounts to 93 percentof the industries in the

sample.Increases in POLCON decreaseNTBs forindustries with up to

26,996 employees,which includes 59 percentof the industriesin the

sample.Only three of the 363 industrieshave values of both variables above

thesetipping points, andin onlythese cases do thevariables together have a

netpositive predicted impact on NTBs.26

24Forexample, 95 percentof thesample industries have a valueof POLCON less than0.088

and haveless than135,200 employees. Yet themean values for the cases

in thetop five percentiles

foreach variableare 0.173 and 238,611,respectively.

25Fortipping value POLCON*, set P4SIZE + g9SIZE * POLCON* = 0, so thatPOLCON*

=

-44/59. For tippingvalue SIZE*, set I3POLCON + 19SIZE* * POLCON = 0, so thatSIZE* =

-439/

Taking thefitted values of thebetas fromTable 1 (and removing the "centering" from

POLCON), POLCON* = 0.076 and SIZE* = 2.7, or 26,996 employees.The readershould be cau-

tionedthat these specific tipping values have meaning only in thecontext of thisparticular sample

(1989 employmentdata). Whether these tipping points are stable across time, for instance, is a ques-

tionthat this study does notaddress.

26NTBsare observedin just twoof thosethree industries. It is worthnoting that in thosetwo

cases INDCON takeson valueswell below average; hence the observed interactive effect of size and

politicalconcentration is not an artifactof industrialconcentration.

  • 1042 MarcL. Buschand Eric Reinhardt

To sumup, these results suggest that most industries are better off when

dispersedacross electoral districts, although the benefits of political disper-

siondecline to nonexistencefor moderate-sized and larger industries. In-

deed,a handfulof extremely sizable industries stand to benefit from greater

politicalconcentration. In addition, larger size reduces the prospects for pro-

tectionin mostindustries, ceteris paribus.

The article'ssecond objective was to testthe close-group hypothesis

morefully by using a measureof geographicconcentration that solves the

checkerboardproblem. The relationshipbetween GEOCON andNTB is

positiveand highly statistically significant (p < 0.001)across all threemod-

els,offering a ringing endorsement ofthe close-group hypothesis.27 This is

impressive,given that these models already control for industry size, in-

dustrialconcentration, and concentration across political geography.28 The

measureof geographic concentration we use makesall thedifference: con-

ventionalindexes are insignificant when substituted for GEOCON, revealing

thecritical importance of correctingthe checkerboard problem.29 Also,

GEOCON's effectand significance in ModelsI-III does notchange if the

geographicunits upon which it is basedare states instead of counties. That is

to say,seventy-four times more aggregation-with its consequent potential

forbias-still doesnot smooth over the substantively important variation in

GEOCON (Ellisonand Glaeser 1997, 910-914).

GEOCON'seffect on NTBs is substantivelyas well as statisticallysig-

nificant.Specifically, holding the other variables at theirmeans in Model

III, GEOCON can increasethe probability of an NTB byup to40 percent,

makingprotection likely when it otherwise would be virtuallyimpossible.30

27Thestrongly positive results for GEOCON holdup evenif we modifythe coding of thede-

pendentvariable to use a 0, 10,20, 25, 30, 40, 50, 60, 70, 75, or 80 percentthreshold instead of the

50 percentdefault for NTB andeven if we makeNTB a continuousvariable instead of a dummy(and

use OLS).

281t shouldbe notedthat, for Models I-III, addingcontrols for variables such as thefollowing

has no effecton theestimates for GEOCON (norare such controlsstatistically significant them-

selves):(a) the1987 number of firms in theindustry (U.S. Bureauof the Census 1998); (b) the1989

value of totalshipments by theindustry (U.S. Bureau of the Census 1997); or (c) whetherthe

industry'sproducts can be categorizedas finalor intermediategoods (Anderson1996; Feenstra,

Lipsey,and Bowen 1997,36-37). In addition,the effect of GEOCON is

notconditioned on industry

size. Forinstance, if we interactGEOCON (centeredto reduce collinearity) with SIZE in Model III,

thecoefficient of the interaction term is positivebut not significant (one-tailed p = 0.236).

291nparticular, Gini and Herfindahlindexes, as well as Krugman's(1991, 55-56) measure,all

calculatedusing both state- and county-level data, yield mostly positive but wholly insignificant

es-

timatesin ModelsII and III (althougha fewof thesealternatives cross the significance threshold in

Model I).

301ncomparison, holding all othervariables at theirsample means, the maximum predicted in-

crease in theprobability of NTB due to TARIFF over its sample rangeis 81.8 percent;due to

INDUSTRIAL LOCATION AND PROTECTION

1043

Thisresult is all themore striking given that the evidence bearing on geo-

graphicconcentration

has been so ambiguousto date.In addition,given

POLCON's verymodest substantive effect, it appears that political geogra-

phyis notnearly as importantas simpleeconomic geography in the politics

ofprotection.

The evidencebearing on thecontrol variables is also interesting.

The

stronglypositive coefficient on TARIFF(p < 0.01) indicatesthat those in-

dustriesalready protected by tariffsare theones mostlikely to receive

NTBs,implying that these measures are complements.

INDCON has a nega-

tivebut statistically insignificant

influence on NTBs in all threemodels.

Likeso muchof the literature,

we findthat market share concentration

has

littlebearing on endogenoussources of protection.

Finally, both of the com-

parativeadvantage variables, IMPEXP and WAGEHOUR,carry the pre-

dictedsign, and each is statisticallysignificant (p <-0.05) acrossall three

models.Those industries that stand to lose more from imports than they gain

fromexports, and those which employ lower-skill labor, are the ones most

likelyto receive NTBs inthis sample of U.S. manufacturing

industries,

con-

trollingfor the effects of political and geographic concentration.

4. IMPLICATIONS

The articlebegan by settingout competing predictions about the rela-

tionshipbetween industrial location and importbarriers. The questionis

whetherclose physical proximity helps an industrysecure protection by in-

creasingits ability to actcollectively or whether it instead parochializes the

industry, squandering votes on a suboptimalnumber of electoraldistricts.

Ourfindings reconcile these competing claims. Surprisingly, both the close-

groupand dispersed-group hypotheses get part of the story right, although

notfor reasons they would identify.

The explanationis as follows.First, studies of endogenousprotection

shoulddisentangle political from economic geography. Strikingly, if we

conflatethe two concepts and regress NTBs ononly POLCON, as priorstud-

ies do,POLCON takeson a positivecoefficient and remains insignificant.

Onlywhen geographic concentration is included separately does POLCON's

trueempirical significance reveal itself. Second, measures of geographic con-

centrationmust account for the spatial relationships among the units. Exist-

ingmeasures, all ofwhich fail to do this,yield insignificant results when sub-

stitutedfor GEOCON. This is whyprior studies have typically reported

WAGEHOUR,-14.4 percent;due to IMPEXP, 59.5 percent(if we excludea singlevery high outlier

valueof thatvariable). If we onlycount variation from each variable's10th percentile to 90thper-

centilevalues in the sample,the figures are GEOCON, 10.8%; TARIFF, 16.0%; WAGEHOUR,

  • 1044 MarcL. Buschand Eric Reinhardt

ambiguousfindings on geographic concentration

and why the results here are

unusuallypowerful.

How shouldthe findings for political concentration

be interpreted? We

contendthat the dispersion hypothesis is substantiallycorrect. Most indus-

triesare better off with employment

dispersed across as manyelectoral dis-

trictsas possible(while maintaining high geographic concentration). Too

muchpolitical concentration

results in "convertingthe saved" in Congress,

squanderingthe industry's voting power where it is notneeded to swaythe

heartsand minds of elected officials (Magee, Brock, and Young 1989, 97-

99). Thisjibes withthe so-called "defense industry strategy,"

whereby con-

tractorslocate plants around the country to buyvotes in supportof upcom-

ingcontracts. The twisthere is thata fewvery large industries stand to

benefitfrom concentrating infewer districts than would be optimalfor small

industries. Industries employing an enormousworkforce can dominatethe

agendaof their elected representatives while not detracting from their influ-

ence in otherdistricts (since they are largerthan average), constituting a

winningcoalition or an effectiveveto player (Snyder 1989).31

Yetthis mechanism only works for a handfulof extremely large indus-

tries.The surprisingand moregeneral implication is thathaving a larger

workforcereduces an industry's influence. In ourview, this strongly supports

theOlsonian argument that larger groups have greater difficulty acting col-

lectively. Size mayalso engenderconsumer opposition to protection(Caves

1976,284; Salamonand Siegfried 1977, 1032). It could be, of course, that an

industrygrows large precisely because it is efficientand competitiveand

thereforenot desirous of protection. However, larger industries dispropor-

tionatelycompete more against imports than they export, casting doubt on

thisargument.32

Swaying votes in Congressis thereforemore a matterof

solvingcollective action problems than of boasting a lot of potential votes per

se. In otherwords, how well a groupis ableto organize, rather than its sheer

size, is whatcounts.

How shouldthe geographic concentration

result be interpreted?

We be-

lievethis finding constitutes

unwavering

support for the close-group hypoth-

esis.Of course, the exact mechanisms by which spatial proximity generates

politicalinfluence can onlybe inferredfrom our evidence, since we do not

directlyobserve the causal process but only the result (i.e., protection). We

3"McGillivray(1997, 601-602) findsin contrastthat large, politically dispersed industries ex-

hibitmore protection than large, concentrated ones. Our results may differ due tothe separate inclu-

sion of geographicconcentration. However, we do notwish to maketoo muchof our differences

withMcGillivray on thispoint, since in bothcases theinteraction effect findings are tentative, driven

by onlya handfulof industries(as notedabove).

INDUSTRIAL LOCATION AND PROTECTION

1045

believegeographic concentration

has severalcritical instrumental

effects,

however.For instance, close physicalproximity enables face-to-face com-

munication, the most effective means of information exchange. It provides a

basisfor dense social networks that promote the sharing of knowledge and,

as a result,collective action (e.g., Galaskiewicz 1985). And it may bolster

theformation of a commonidentity in theprocess. For these reasons, geo-

graphicconcentration also meansthat workers and managersin different

plantsface lower transaction costs in organizingfor the purpose of turning

outthe vote. They should thus be moreable to monitor the political efforts of

othersin theirindustry and to sanctionundercontributors. The result is a

greaterability to convert protectionist preferences into policy. The empirical

associationwe findsupports this argument, which can onlybe validated,

moreover, by correcting

the checkerboard

problem.

Ourclaims about the instrumental

effects of geographic concentration

resonatewith a varietyof studieshaving little to do withtrade protection.

Forexample, Tilly (1973) arguesthat physical closeness among members of

a groupmakes collective action more likely. Mizruchi and Koenig (1991)

demonstrate that geographic proximity increases the chance that firms in an

industrywill cooperate to makecampaign contributions. And Caldeira and

Patterson(1987, 968-969) establish that a factoras simpleas thephysical

proximityofmembers' seats in a legislatureincreases those members' politi-

cal friendshipand thereby joint action-even when controlling for initial

levelsof friendship. Such studies lend support to a close-groupinterpreta-

tionof this article's findings about GEOCON.

Nevertheless,

we areobliged to consider alternative

explanations for the

demonstratedassociation between geographic concentration and protection.

One couldargue, for example, that geographically

concentrated

industries

disproportionately

receive protection

because they might be lesscompetitive,

notbecause of the spatial proximity

oftheir firms and workers. Or one might

arguethat protection itself causes concentration, rather than the other way

around.Neither argument is borneout by theevidence. The data in our

sampleindicate that geographically

concentrated

industries are not less com-

petitive.33More generally, economic theory and evidence suggest strongly

thatindustries exhibiting geographic concentration arecapitalizing on econo-

miesof scale, which makes them better, not worse, trade performers (Porter

1990; Hanson 1998). And whilegeographic concentration is certainly

affectedby marketsize (and henceprotection), a number of studieshave

demonstratedthat reductions, not increases, in protectionraise geographic

33GEOCON is not significantlycorrelated with IMPEXP, plain importdependence, or

WAGEHOUR(r = 0.30, r = -0.057, and r = -0.033, respectively,

with no p < 0.280; N = 363).

  • 1046 MarcL. Buschand Eric Reinhardt

concentration(see Amiti1998).34 Hence there is no reasonwhy geographi-

callyconcentrated industries would ceteris paribus prefer greater protection.

Anothercompeting explanation is thatassets of productive factors may

be morespecific for geographically concentrated industries (Shafer 1994,

39-45; Moore1996, 24). Forexample, getting a local job maybe moredif-

ficultfor an unemployedworker in a regiondominated by a singlemanufac-

turer.If so, thenasset specificity,

and not GEOCON's effecton transaction

costsimpeding collective action, could explain our results. Since we lacka

goodmeasure of asset specificity, we areunable to empirically reject this al-

ternativeinterpretation. However, we findthis argument theoretically less

compellingthan the close-group hypothesis. In particular, just because an

industryis geographicallyconcentrated does notmean that it is theonly

gamein town.35The vastmajority of geographicallyconcentrated U.S.

manufacturing industries is centeredin thesame area, the industrial heart-

landfrom Missouri through Ohio.36 Indeed, economists have theorized that

labormarket pooling contributes substantially to industriallocalization

(Krugman1991, 38-43). Far from making assets more specific, geographic

concentrationmay thus increase the ease withwhich one productive factor is

putto anotheruse. In thissense, we submitthat the close-group hypothesis

providesa betterexplanation of theobserved relationship between geo-

graphicconcentration and protection.

Anotherimplication of our findings concerns industrial concentration.

FollowingOlson's (1971) group size claim, an industrywith fewer important

firmsmay exhibit greater collective action and, hence, protection, but this is

an entirelydifferent argument from the close group and dispersed group hy-

potheses.The literature has too often used industrial concentration as a proxy

forgeographic and political concentration, despite the fact that INDCON is

nothighly correlated with GEOCON andonly moderately with POLCON.

Moretelling still, if we do notinclude POLCON in our regressions, INDCON

becomesstatistically significant, a sign of the pitfalls inherent in substituting

onefor the other. When variables appropriate toeach separate concept are in-

cludedin a singlemodel, industrial concentration washes out, consistent with

34Itis truethat our study, as a singlecross-section, does notby itselfeliminate the possibility

thatmany of these NTBs werein place fora longtime before 1990, possibly preceding (if not caus-

ing)the geographic concentration with which they are associated. However, as Krugman(1991, 60-

63) argues,the localization of industry is path-dependent and "sticky," and U.S. industriesin particu-

lar were,if anything,more concentrated during the formation of theseNTBs, notless (Kim 1995),

whichis consistentwith our explanation, and not the alternative.

35GEOCON'scorrelation with the number of firms in an industryis negativebut very low (r =

-0.116, N = 453). GEOCON likewiseexhibits little relationship with industrial concentration (r =

0.132,N= 443).

36The nationalindustry centroids of thetop third of all industriessorted by geographical con-

centrationare only an averageof 310 milesfrom each other.

INDUSTRIAL LOCATION AND PROTECTON

1047

someprior studies (Caves 1976, 286-287; Hansen 1990, 35-36). Apparently

theproblem of cooperation among larger numbers of firms is dominatedby

thegreater difficulty ofencouraging cooperation among physically dispersed

actors-evenif many of those actors are tied to one or a fewfirms.

In additionto sheddingnew light on an old debate,our findings raise

somenew questions for further research. First, the formation and articula-

tionof protectionistpreferences among workers and managers,levels of

unionization, representation through peak associations, lobbying, and voter

turnoutmay well varywith geographic concentration, offering telling in-

sightsinto the political activities of industrywith respect to tradepolicy.

Whileour paper can only hint at these issues, it points the way for future re-

searchon thepolitical effects of geographic concentration.

Second,how does industrial location affect protection in countries with

electoralsystems that differ from the single-member districts characteristic

ofthe United States (McGillivray 1997; Rogowski 1997)? Recall that elec-

toralinstitutions only reflect the political component of industrial location.

Ourfindings indicate that economic geography matters much more. Geo-

graphicconcentration can be expectedto increaseprotection regardless of

electoralrules. Indeed, others have found some initial support for this hy-

pothesis(Milner 1988, 260). Comparativestudies equipped with measures

ofboth political and geographicconcentration may provide invaluable in-

sightsalong these lines. Particularly encouraging is ourfinding that geo-

graphicconcentration need not be measuredusing very fine units of analy-

sis,since state-level data produces much the same answer as county-level

data.Those with more limited sub-national data in handshould thus not be

deterredby concerns about aggregation bias.

Third,will the increasing geographic concentration ofindustry inWest-

ernEurope and North America reshape trade politics among the advanced

industrial states (Rogowski 1997)? The newtrade theory suggests that in-

creasingreturns to scale drivemore international trade, but increasing re-

turnsalso fostergeographic concentration (Krugman 1991). The question is

thuswhether greater concentration will offset the gains from further trade

integrationthat might otherwise be achieved.

5. CONCLUSION

Threeproblems cast doubt on thefindings reported in theendogenous

protectionliterature. First, geographic concentration

is widely taken as a

proxyfor political concentration, although these two variables hardly work

in lockstep.Second, measures of geographic concentration typically ignore

thespatial relationship among the units (i.e., countiesor states)and thus

fail to accountfor the proximity of regionshome to lumpyindustries.

Third,in thosefew studies in whichpolitical concentration receives any

  • 1048 MarcL. Buschand Eric Reinhardt

directattention at all, nonmonotoniceffects and interaction terms are sel-

domtested, despite their grounding in theoriesof interestgroup politics

moregenerally. We correctall threeproblems and find that geographically

concentratedbut politically dispersed industries are the ones most likely to

receiverelief from imports, although very large industries benefit from be-

ingpolitically concentrated. The articlethus reveals how to reconcilethe

twocompeting hypotheses around which one of endogenousprotection

theory'smost enduring debates has taken shape.

Manuscriptsubmitted October 13, 1998.

Final manuscriptreceived January 4, 1999.

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