The spatial distribution of businesses and neighborhoods: What industries match or mismatch what neighborhoods?

Abstract

Using the Longitudinal Employer-Household Dynamic (LEHD) and American Community Survey (ACS), we evaluate the spatial relationship between businesses and neighborhoods through exploring the effects of homeownership rates on the job counts of businesses located at various distances to the neighborhoods. The effects of interest are evaluated for neighborhoods of different income levels and businesses of various types. To construct the spatial framework, we first cluster the businesses and then draw residential donut rings of different radii surrounding the business clusters. To control for any fixed locational and temporal features affecting the location choices of both households and businesses, we employ a fixed-effect (FE) identification strategy, where a positive (negative) coefficient suggests that the businesses match (mismatch) the neighborhoods with a higher concentration of homeowners. Our findings show that no industries mismatch the higher-income homeowners, whereas a mismatch exists between their lower-income counterparts and the industries of food and entertainment; the industries that match homeowners of both income groups include retail trade, whole trade, and education. In addition to these three sectors, health, professional services, and entertainment match the higher-income homeowners, whereas construction and transportation match the lower-income ones; for retail trade and whole trade, the matching occurs at a shorter distance between the lower income neighborhoods and businesses. Our results can assist the government in perfecting zoning regulations, developing subsidizing policies, and constructing affordable housing programs.