Population density as the attractor of business to the place.

Abstract

Firm location studies traditionally assume that this is business that attracts other business to a given location. They focus on knowledge transfers between the most productive and innovative firms and analyse agglomeration economies arising from matching, learning and sharing mechanisms. We argue that the population density also attracts firms to the place. Therefore, we extend this stream of research by using the concept of economies of density to discuss the effects of the attraction of firms by population. Our study explores the existence of the hierarchical causal mechanism that occurs when 2nd line firms understood as non-innovative, less productive retail and service businesses together with human settlement create an environment that attracts 1st line firms - the most innovative and productive businesses. We show that population density and business agglomeration jointly affect the location of firms in different sectors and should be considered as complementary rather than substitutable attraction factors.