We study the effect of proximity to other wineries on the formation of new wineries and how this effect depends on winemaking history in a location. Clustering is common in the wine industry, but it also depends on other factors, such as proximity to vineyards and high-reputation wineries. Using panel data with annual observations from 1994 to 2014 on 598 zip codes within Washington State, we estimate empirical models that control for proximity to wineries, proximity to vines, proximity to income, and the presence of star wineries. We find that the elasticity of the number of wineries with respect to prox- imity to wineries outside the zip code hinges on the length of local winemaking history. For locations with 11 or more winery years prior to our sample, the elasticity is at least 0.44. The presence of elite wineries is also found to have an effect, with about 0.5 addi- tional wineries per year starting in a zip code per star winery. The effect of history suggests that policies to seed winery start-ups will help cluster formation, but only with a substan- tial critical mass of winemaking activity.
Keywords: clusters; knowledge network; knowledge spillovers; wine industry