Review of Industrial Organization
12: 317–334, 1997.
1997 Kluwer Academic Publishers. Printed in the Netherlands.
The Pin Factory Revisited: Product Diversiﬁcation
and Productivity Growth
FRANK M. GOLLOP
Department of Economics, Boston College, Chestnut Hill, MA 12167, U.S.A.
Abstract. Manufacturing plants have been producing an increasingly homogeneous product mix over
recent years. Individual plants have been manufacturing fewer and less dissimilar products. The trend
is ubiquitous across industries and is unlikely to bea random event. An index of product diversiﬁcation
is introduced into a ﬁxed-effects model of productivity growth derived formally from a factor-minimal
cost function. Specialization at the production site is found to have spurred productivity growth.
Over the 1963–87 period, decreasing product heterogeneity has accounted for about 17 percent
of productivity growth in U.S. manufacturing, second in importance only to technical change and
equaling the contribution of scale economies.
Key words: Productivity, diversiﬁcation.
It is a well-known phenomenon that manufacturing ﬁrms have become increasingly
diversiﬁed over recent decades. What is less well known is that production activity
at individual manufacturing plants has become increasingly homogeneous. Gollop
and Monahan (1991, p. 327) report that while enterprise-based diversiﬁcation
increased in 14 of 20 two-digit manufacturing industries between 1963 and 1982,
product specialization in individual establishments increased in 17 of the same 20
industries. When viewed over the 1963–87 period, this proportion increases to 18
of 20 industries representing more than 86 percent of manufacturing shipments.
The pattern is persistent from census year to census year throughout the full
period. Between every pair of Census of Manufactures years in the 1963–87 period
product diversiﬁcation declined in individual plants in 17 of 20 industries. In fact,
the percent of establishments producing no more than a single 5-digit product
increased in 19 of 20 two-digit industries over the full period.
Such a ubiquitous pattern is unlikely to be random. It most likely is the result
of rational proﬁt-maximizing behavior. As Gollop and Monahan (1991, p. 329)
conclude: “Enterprises appear to be restructuring their production activity, moving
Professor of Economics, Boston College. The author thanks two anonymous referees for their
helpful comments but retains responsibility for any errors or omissions. The author also thanks James
Monahan of the U.S. Census Bureau for his help in updating the diversiﬁcation data and Tong Zheng
for his able research assistance.