This post follows up on my 2018 post, What economic activities are “tradable”?. Since then, I learned a bit more about this literature from Santiago Franco, a UChicago PhD student studying spatial variation in market power.

Delgado, Porter, and Stern (2016) build on Porter (2003) to divide industries into traded industries and local industries:

Porter (2003) examines the co-location patterns of narrowly defined service and manufacturing industries to define clusters, following the principle that co-location reveals the presence of linkages across industries. The methodology first distinguishes traded and local industries. Local industries are those that serve primarily the local markets (e.g., retail), whose employment is evenly distributed across regions in proportion to regional population. Traded industries are those that are more geographically concentrated and produce goods and services that are sold across regions and countries. The set of traded industries excludes natural-resource-based industries, whose location is tied to local resource availability (e.g., mining).

This approach use a combination of high employment specialization and high concentration across BEA regions to classify industries. One advantage of this classification relative to the Mian and Sufi classification mentioned in my previous post is that its classification of NAICS 6-digit industries into local and traded is exhaustive.

Of course, there are shortcomings and difficulties involved in declaring every industry to be “traded” or not. “Tradable” and “traded” are not exactly synonymous: goods may be tradable but not traded because of the pattern of comparative advantage or weak scale economies, for example.

Here’s one example where I think the classification is troublesome: the Cluster Mapping Project says that all 39 6-digit industries within NAICS 62 “Health Care and Social Assistance” are non-traded. Meanwhile, I’ve written paper on “Market Size and Trade in Medical Services“. Using Medicare claims data, we document that “imported” medical care — services produced by a medical provider in a different region — constitute about one-fifth of US healthcare consumption!

April 2024 update: Also relevant is a recent working paper by Simcha Barkai and Ezra Karger, “Classifying Industries into Tradable/Nontradable via Geographic Radius Served“.