This paper demonstrates that recent attempts to explain manufacturing shifts to nonmetropolitan areas can be synthesised into a capital vintage model of production. The result is a set of systematic differences between urban and rural production methods which are consistent with the locational implications of the manufacturing process cycle theory. The model is supported by the first comprehensive estimation of separate production functions for SMSAs and nonmetropolitan areas. Using Census data for the US from 1977, only SMSAs are shown to possess the significant agglomeration economies needed for product development and process innovation. Cost-competitive nonmetropolitan areas show much greater variation in input proportions due to spatial factor price differentials.
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