What Makes a District? "Created" Externalities in Craft-Like Manufacturing -- The Garment Industry

Abstract

This paper documents the emergence of “new” industrial districts using evidence from longitudinal and retrospective studies of garment districts in France, Italy, the UK, and the United States. “Traditional” district externalities – proximity to customers and suppliers, access to skilled labor supplies, knowledge about products and production processes -- matter as much to the smaller craft-like firms that survive as they did to the larger firms that are now disappearing. However, we also find an emerging set of externalities being “created” by surviving firms that are “craft-like” in that they are quick and flexible in their production methods and tend to serve markets for more individualized products with short product cycles. We identify three distinct patterns among the new externalities being created by firms: (1) strengthening traditional sources of externalities, (2) intensifying market and/or social incentives for higher effort and lower costs, and (3) fostering a district-wide culture of broad-based Schumpeterian innovation by firms. While the institutional history of each district and the nation-specific structure of supply chains shape these responses, the patterns we observe transcend national boundaries.