Abstract
This paper draws on location theories to statistically identify the relationship between the location of individual business establishments and the characterization of their local economic environment. Taking a micro-spatial perspective, the paper develops indicators from distance-based measures (DBM) to serve as independent variables in a discrete choice model (DCM). Using a 2006 database of individual business establishments in the Lower-St-Lawrence region—a coherent, nonmetropolitan subsystem of cities in the province of Québec, Canada—we provide an empirical analysis of the determinants of individual establishments’ location decisions in relation to their main economic activity within a random utility model (RUM) framework. The results show that distance to nearby centers, co-location (specialization), and the size of establishments are statistically related to location decisions. However, unlike previous studies, it is also found that discrete location choices of business establishments in service industries are not necessarily influenced by economic diversity or co-location, whereas manufacturing firms’ location decisions are not impacted by distance to markets. All told, we believe the results provide further evidence of the importance of scale in the study of business location decisions.
Highlights
The location decisions of firms and the distribution of economic activity have long been a central concern in economic geography
While localization economies appear to be significantly related to the location decision of individual establishments, the results show that urbanization economies are only marginally related to location choice in the case of a nonmetropolitan area
We have addressed this question by assuming that the location choice of individual establishments is related to the quest to maximize profits, which is highly influenced by the rent paid to locate at a given point, which in turn is assumed to be homogenous according to the main economic activity
Summary
The location decisions of firms and the distribution of economic activity have long been a central concern in economic geography. Location theory has emphasized the role of distance, economies of agglomeration, and rent seeking in the location of firms and industries. Most of the theories are developed explicitly from a microeconomic perspective: individual firms or establishments seek to reach an optimum, usually defined as a profit-maximizing or costminimizing function. The empirical pattern of the spatial distribution of firms or establishments is treated as a result of this optimum, with the implicit assumption that observed patterns of industrial location are the outcome of spatial sorting at the firm level. Empirical applications looking at the spatial distribution pattern of economic activities are rarely addressed from a micro. There is no clear consensus about the optimal scale at which such theories hold or the geographical scale at which such effects operate (Shearmur, 2012)
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