Keeping profits at home: A study of firm ownership and the geographical concentration of capital gains in the United States

Abstract

Approximately 39% of American wealth exists in the form of private ownership in firms. Surprisingly, the existing economic geography literature offers us little insight into where the owners of this vast wealth reside relative to the firms they own, nor of the potentially important economic implications of this unknown geographical proximity. This comparative case study utilizes a unique dataset to examine three mid-size American manufacturing firms with varied ownership structures. It finds that the employee-owned firm and family-owned firm concentrate firm-created wealth in local communities to a greater degree than the publicly traded firm. Building on this empirical evidence, the paper then uses both Endogenous and Keynesian growth theory to argue that this concentration can feasibly lead to local economic growth through subsequent local reinvestment of that wealth. This theoretical insight is important because it offers a new perspective on the multifaceted debate concerning which firms should receive incentives from local policymakers. Results imply that public policy requiring local ownership as a condition of incentives is in the long-term economic interest of local residents. This pilot work contributes to the existing academic literature by justifying subsequent studies on the economic geography of firm ownership and by establishing methodological precedent on the subject.