HOW INDUSTRY CLUSTERS EMERGE: Historical evidence that immigrants can provide an early start

Research presented at the annual congress of the European Economics Association suggests that European immigrants arriving in the 19th century promoted the establishment of local clusters in manufacturing industries across the United States that have survived until the present. 

‘Clustering’ of industries in a few locations is common in the manufacturing sector in the United States and many other developed and developing countries. Silicon Valley employs more people in the IT industry than any other US location and Detroit employs more people in the auto industry than any other comparably sized city. How do we explain where industries cluster?

The new research by Sebastian Ottinger helps to answer this question. When explaining the reason why specific locations are centres of industries, he purports that it is essential to understand how they became such centres in the first place. Anecdotal accounts often suggest that where the initial pioneers of an industry locate matters. Early starts give locations a ‘first-mover’ advantage and help them become and remain national and regional industrial centres.

Yet, providing systematic empirical evidence that supports this account has proven difficult. Entrepreneurs choose where they set up shop wisely. Ottinger advocates that many European immigrants arriving in the second half of the 19th century were among such pioneers for the manufacturing belt in the United States. While they did go to places suitable for the industries they were working in, they also aimed at being close to compatriots.

Based on this, Ottinger shows that where immigrants set up shop was based on the settlement patterns of earlier immigrants. These previous immigrants – predominantly farmers – chose locations because they were suitable for agriculture, not manufacturing. Ottinger identifies the sectors that immigrants were experienced and skilled in based on their European origin countries. From historical trade data, he recovers these countries’ specialisation across the various industries in the manufacturing sector.

He shows that the origins of immigrants and the origins specialisation in manufacturing predict which US counties became specialised in particular manufacturing industries in the following decades. Counties with more early agricultural immigrants hailing from European origins, which were specialised in particular manufacturing industries, record more employment in these industries during the emergence of the US manufacturing belt. This result is especially pronounced in new sectors associated with the Industrial Revolution, and the only recently settled region on the ‘frontier of settlement’. 

Why did these counties become specialised in the sectors their initial immigrants were specialised in? Ottinger shows that early immigrants attracted further immigrants. The immigrants who arrived later brought skills and knowledge to the then-novel manufacturing sector and set up pioneer establishments, where the previous immigrants settled.

This historical immigration episode shaped the industrial fate of many counties across the United States for more than a century: these locations have tended to remain centres until the present.


Sebastian Ottinger, Ph.D. Candidate 

University of California, Los Angeles