The emergence of Detroit as the capital of the American automobile industry has been attributed to the process of spinoff formation in Detroit. We suggest that this assertion suffers from an omitted variable bias: it does not account for automobile production capabilities that were so vital early on in the industry. In contrast, we suggest that Detroit became the hub of the automobile industry because firms in Detroit figured out the complex process of automobile manufacturing. We also suggest that spinoffs were not the firms that successfully manufactured cars and that it was firms that engaged in economic experimentation that successfully manufactured vehicles. We propose manufacturing capabilities as a novel mechanism for industry agglomeration.
