Agglomeration economies, accessibility and the spatial choice behavior of relocating firms

Abstract

A growing body of empirical urban economic studies suggests that agglomeration and accessibility externalities are important sources of the uneven distribution of economic activities across cities and regions. At the same time, little is known about the importance of agglomeration economies for the actual location behavior of firms. This is remarkable, since theories that underlie agglomeration economies are microeconomic in nature. In a case study of the Dutch province of South-Holland, we analyze micro level data to determine the extent to which relocation decisions are dependent on accessibility and agglomeration externalities (when controlling for firm characteristics). These externalities are measured with location attributes for localization- (own-sector) and urbanization economies and proximity to transport infrastructures, respectively. The results confirm that firm relocation behavior is affected much more by firm level attributes (size, age and growth rates) than by the agglomeration and accessibility attributes. Still, accessibility and agglomeration are significantly attached to firm relocations, though they vary over sectors. Own-sector and generalized external economies are more important for a firm’s location choices than proximity to transport infrastructures.