Home-field advantage: location decisions of Portuguese entrepreneurs

Abstract

An investor's home bias in industrial location decisions may stem from personal factors, social capital, other non-transferable assets, and imperfect information about the urban and regional environment. This paper explores the distinction between home-base and non-home location decisions in Portugal. We reach two important conclusions. First, the introduction of a variable accounting for prior base of economic activity significantly improves the statistical results. Second, we find that the weighting of distinct location attributes differs between home and non-home locations. Notably, non-home location choices are strongly governed by agglomeration economies and proximity to major urban centers, possibly replicating prior location decisions to economize on search costs. The results also enable us to quantify the investor's willingness to opt for a possible home-field advantage; for example, entrepreneurs accept over three times higher labor costs to compete in their resident area of business.