Firm Relocation Research Articles

Trade and the environment, trade policies and environmental policies—How do they interact?

AbstractWhile international trade can offer gains from specialization and access to a wider range of products, it is also closely interlinked with global environmental problems, above all, anthropogenic climate change. This survey provides a structured overview of the economic literature on the interaction between environmental outcomes, trade, environmental policy and trade policy. In this endeavor, it covers approaches reaching from descriptive data analysis based on input‐output tables, over quantitative trade models and econometric studies to game‐theoretic analyses. Addressed issues are in particular the emission content of trade and emissions along value chains, the relocation of dirty firms and environmental impacts abroad, impacts of specific trade policies (such as trade agreements or tariffs) or environmental policies (such as border carbon adjustment), transportation emissions, as well as the role of firms. Across the different topics covered, the paper also tries to identify avenues for future research, with a particular focus on extending quantitative trade and environment models.

Trade Liberalization, International Relocation of Firms, and Economic Growth

This paper presents a framework for understanding the role of global tariff rate reductions in affecting the world growth rate, given knowledge spillovers in research and development (R&D) and the relocation of firms. In particular, we highlight one aspect of the model: the international relocation of firms associated with a reduction in world tariff rates. This paper shows that, given the spillover effect of localized R&D knowledge, a simultaneous multilateral reduction in the common tariff rate increases the world growth rate through the relocation of firms.

Robots, firm relocation, and air pollution: unveiling the unintended spatial spillover effects of emerging technology

Amidst the global upsurge in industrial robot deployment, there remains a notable gap in our understanding of their environmental impact. This paper explores how the introduction of industrial robots has changed air quality at both the local and neighborhood levels in China. Using the Spatial Durbin Model, we investigate the regional spillovers of PM 2.5 concentration and the diffusion of this innovative technology. Our findings reveal that the rise of robots significantly reduces air pollution in the local area, while exacerbating it in neighboring regions. This contrast is mainly because pollution-intensive industries are more inclined to relocate to neighboring regions than their cleaner counterparts, after the local use of robots increases. Throughout the process, internal costs rather than external costs dominate firms’ relocation decisions. This study provides novel insights into the complex environmental externalities associated with the spread of industrial robots and highlights the critical issue of growing environmental inequality in the era of emerging technologies.

Do China's pilot emissions trading schemes lead to domestic carbon leakage? Perspective from the firm relocation

The limited geographical coverage of pilot emissions trading schemes (ETS) raises domestic carbon leakage risks. Since relocation represents a primary channel that causes carbon leakage, this paper investigates the impact of China's pilot ETSs on firms' cross-provincial relocation with a method combining propensity score matching and staggered difference-in-differences. The empirical results, based on the data of Chinese listed industrial firms from 2009 to 2020, show that the ETS has accelerated firm relocation by increasing negative attention and social capital investments. According to the threshold analysis, firms with sufficient abatement efforts do not undertake relocation strategies. The theoretical analysis can also be confirmed by further investigations on the price signal distortions and the negative impact of relocation on carbon prices. Moreover, the study also demonstrates the heterogeneous effects across firm characteristics, industry types, and policy design features. Overall, these findings provide a reference for China's government to prioritize the establishment of domestic leakage prevention mechanisms for ETS.

Стратегії релокації українських high-tech підприємств під час війни

The full-scale war gave impetus to significant migration trends that caused dramatic changes in Ukraine’s economy. Such trends have spread not only to people from the temporarily occupied territories, territories where active hostilities are taking place and there is a threat of shelling, but also intensified the relocation of various enterprises. There was a need to quickly move the assets of enterprises, employees and their families. The nature of such relocation and approaches to its implementation were different, supported by the authorities of Ukraine and other host countries, and depended mainly on the financial capacity of entrepreneurs, readiness to change location and a set of subjective factors, including the type of economic activity. Thus, the article is devoted to the study of the processes of relocation of Ukrainian high-tech companies, most of which are traditionally concentrated in the IT sector. The aim of the article is to study the strategies of relocation of Ukrainian high-tech enterprises during the wartime, to determine the factors influencing the adoption and implementation of decisions on relocation in critical conditions and conditions of uncertainty. The positive trends in the development of the domestic IT sphere before the full-scale invasion are analyzed, including entering the international arena as an outsourcer for Western countries. New challenges, and therefore new opportunities for the development of technologies and the high-tech industry caused by the war, are considered. The concept of relocation, its types and levels are identified. The main difficulties and efficiency of relocation of IT firms are defined, which depend on taking into account localization, the amount of costs, involvement of personnel, customers and partners, time and effort for a relocation, as well as on the reputation of firms and opportunities for their development. Each relocation is a unique economic and social phenomenon, and the impact on an IT firm may vary depending on the specific circumstances. It is quite important to plan and coordinate relocation processes to maximize benefits and reduce possible negative consequences. There is a difference in planning, coordinating, and financing the relocation process between large and small IT companies. The factors influencing the decision-making on relocation are classified. The development and implementation of relocation strategies took various forms. IT companies have demonstrated high adaptability and independence of action in the face of uncertainty and threats. The article conducts a SWOT analysis of Ukrainian high-tech enterprises, proposes typical scenarios for the development of events during relocation in the conditions of wartime in the form of a matrix of strategies. The relocation of Ukrainian IT companies took place on a significant scale, in some cases these processes began to be planned and even implemented even before the full-scale invasion for security reasons. The regional model of relocation was marked by the presence of powerful regional IT ecosystems, a focus on previous business contacts and family ties, relocation mainly to large cities, and the activities of organizations to support Ukrainian businesses during relocation within the borders of Ukraine and abroad.

Regional Investment Flows from Greece to Bulgaria in the COVID‐19 context: is there a halt trend?

AbstractThis paper offers a comprehensive analysis of the investment flows from Greek to Bulgarian regions against the context of COVID‐19. Employing a mixed research method, it investigates the initial impact of COVID‐19 on regional FDI flows from Greece to Bulgaria and intends to explore to which extent the pandemic acts as an impediment to firm relocation, by examining regional investment flows from 2013 to 2020. The effects of the COVID‐19 macroeconomic shock are placed in the context of the existing conditions shaped by the 2008 global economic crisis. The paper also attempts to provide a critical insight of factors underlying investment flows. The results indicate that there was a limited investment halt but no disinvestment from the Greek to Bulgarian regions in the first year of the COVID‐19 outbreak. Low and stable taxation, cheap labour and efficient regulatory regime attract Greek investments in Bulgaria.

Economic spillovers and political payoffs in government competition for firms: Evidence from the Kansas City Border War

When jurisdictions use business incentives to compete for firms, the political payoffs of winning firms are privately derived by the politicians of the winning jurisdictions, but the economic payoffs, such as new jobs, can spill over to the residents of non-winning jurisdictions. I study how potential political payoffs shape government competition for firms using a simple model of government competition and firm location choice. I use the model to propose an empirical approach of deriving lower bounds on political payoffs with data on accepted incentives. Applying this approach to the recent state competition between Kansas and Missouri for firm relocation within Kansas City, I find that the two states derived sizable political payoffs.

A quantitative analysis of subsidy competition in the U.S.

We use a quantitative economic geography model to explore subsidy competition among U.S. states. We ask what motivates state governments to subsidize firm relocations and quantify how strong their incentives are. We also characterize fully non-cooperative and cooperative subsidy choices and assess how far away we are from these extremes. We find that states have strong incentives to subsidize firm relocations in order to gain at the expense of other states. We also find that observed subsidies are closer to cooperative than non-cooperative subsidies but the potential losses from an escalation of subsidy competition are large.

Changes in environmental performance with firm relocation and its influencing mechanism: An evidence of chemical industry in jiangsu, China

A micro firm relocation perspective plays important roles in deepening the understanding and knowledge on the environmental effects of industrial transfer and related mechanisms, however, such research and cases are currently scarce. Based on the building of both the database of firm relocation information and a conceptual framework of changes in environmental performance with firm relocation (ΔEP), involving factors of firm heterogeneity and changes in both locational conditions and whole-process pollution treatment paths, chemical firms in Jiangsu Province were selected to explore their ΔEP and related influencing mechanisms by the Wilcoxon signed-rank test of two paired samples and a binary logistic regression model in this study, respectively. Results showed that during 1998–2014, chemical firm relocation experienced a fluctuating growth trend with a continuous surge in inter-city relocation, accompanied by a deterioration in the environmental performance (EP) with a significant reduction of pollution removal intensity (p < 0.01) after firm relocation. Most firms relocated from Southern Jiangsu (72.5%) to places adjoining Jiangsu Province (58.5%), along the river and the coast (63.4%), and in the third- and fourth-tier cities (73.5%), respectively. As for these factors, the low development level of transfer-out (DTOR) and transfer-in region (DTIR) both resulted in the downgrading EP with firm relocation, but the inter-city relocation style (RS) and strict environmental regulation (ER) were the opposite. The benefits for upgrading EP after relocation conferred by the promotion of source-process treatment were limited by RS, DTOR, and DTIR. Among firms relocated to low DTIRs, the higher the firm competitiveness in terms of capital, technology, and environmental awareness, the greater the upgrading EP probability. When firms transferred to regions with stricter ER, the likelihood of improving EP increased more for those firms with weak competency. In a word, in order to prevent the pollution haven effect, superior governments should shrink regional differences in ER policies, whereas local governments in transfer-in regions should provide targeted and essential support in funding and technology according to the firm heterogeneity and fully consider actual conditions to make environmental measures in the future.

Trade, location, and multi-product firms

In this paper we study how trade liberalization affects the location and the product scope of firms. We find that the largest and most productive multi-product firms concentrate to the larger market as a result of trade liberalization. In the presence of relocation costs, we also find that these firms will expand their product scope in the larger market while firms in the smaller market will contract their product scope or expand it to a smaller degree. The adjustment of firms’ product scope can therefore be a substitute for firm relocation, and the cost of introducing new varieties becomes an important parameter, that influences the degree of agglomeration.

Firm relocations, commuting and relationship stability

ABSTRACT In this paper we study the impact of firm relocations on commuting distance and the probability of married couples and cohabiting couples with children separating. We use Swedish register data for the period 2010–16 and select employees of relocating firms with one workplace and more than 10 employees. Focusing on this sample allows us to use plausibly exogenous variation in the commuting distance arising from the relocation. We extend the literature on the effect of commuting on relationship stability by reducing the possibility for unobserved time-variant factors to bias our estimates. While previous literature has focused on the difference between short- and long-distance commuting, we focus on changes in the commuting distance that are externally induced by firm management. We find a small but statistically significant negative effect of increased firm relocation distance on family stability. A 10 km change in commuting distance leads to a 0.09 percentage point higher probability of separation if the commuter remains with the firm for the next five years.

Is environmental regulation the answer to pollution problems in urbanizing economies?

This paper seeks to better understand the persistent environmental problems in urbanizing economies. We examine the effectiveness of environmental policy in an economy with agglomeration economies and endogenous firm relocation and entry/exit. We show that, although environmental regulation is effective in the short run, in the presence of agglomeration economies, spatial relocation of firms in response to environmental regulation can undermine the effectiveness of regulations, rendering them less effective or even ineffective. In fact, we show that regulation might even be counter-productive, i.e., exacerbate environmental problems, at certain stages of development. We present initial empirical evidence in the context of water pollution in China that demonstrates the importance of agglomeration economies in determining the impacts of environmental regulation.

A Quantitative Analysis of Subsidy Competition in the U.S.

What motivates regional governments to subsidize firm relocations and what are the implications of the subsidy competition among them? In this paper, I address these questions using a quantitative economic geography model which I calibrate to U.S. states. I show that states have strong incentives to subsidize firm relocations in order to gain at the expense of other states. I also show that subsidy competition creates large distortions so that there is much to gain from a cooperative approach. Overall, I find that manufacturing real income can be up to 3.9 percent higher if states stop competing over firms.

City Business Taxes and Retail Firm Relocation Decisions

There is very little literature on the impact of city taxes on firm relocation decisions. Using an ordered probit econometric model of selection, a national sample of U.S. retail establishments, and data on the existence of city business taxes for the largest 800 cities, I find that establishments are less likely to move to cities with a city business tax, and are more likely to move from cities having such a tax. Specifically, after controlling for other factors, I find that establishments are 30.4 percent less likely to move to a city having a city business tax, and are 22.5 percent more likely to move out of a city having such a tax. The results are consistent across econometric models. The paper contributes to the general literature on firm relocations, and to the literature on the impacts of local taxes. Future research on the impact of city taxes on the relocation decisions of other types of firms is called for.

Digital gravity? Firm birth and relocation patterns of young digital firms in Germany

AbstractThis paper analyses the spatial patterns of young (&lt;10 years) digital firms in Germany between 2008 and 2017 on county level. Determinants of firm birth locations as well as relocations are considered jointly to understand differences in location choices within firms' life cycles. I match commercial register data of 107,321 firms with county‐level administrative data to capture local characteristics. Using an OLS model with fixed effects, I find that the local knowledge base—that is, universities, research institutes, and colocated incumbents—are significant key determinants of digital firm birth when controlling for a host of local characteristics. My results indicate that for five firms per 1000 inhabitants, there is around one firm birth. Second, using a fixed effects gravity model for the analysis of relocations, I find that the most dominant explanatory factor for firm relocation across specifications is distance, that is, relocation costs. Relocation flows are more than twice as high to neighboring counties relative to other locations which shows that digital firms are not as footloose as their business model may suggest. Jointly, my results reflect economic activity's regional persistence, particularly for new firms. My paper provides evidence for policies targeting homogenous digital clusters based on strong colocation and that digital economic activity is not shifted over long distances, but the regional entrepreneurship capital is crucial for local growth.

Strategic climate policy with endogenous plant location: The role of border carbon adjustments

AbstractCarbon leakage and the relocation of firms is one of the main concerns of governments when choosing their climate policy. In a strategic trade model with endogenous plant location, we study the effect of border carbon adjustments (BCAs) on global welfare and emissions in an emission tax competition game between two asymmetric countries for two games: a simultaneous and a sequential game. Without BCAs, a ruinous “race to the bottom” with no relocation of firms is the only Nash equilibrium in a simultaneous game. In a sequential game, additionally, a “wise chicken” equilibrium may emerge where the Stackelberg leader gives in, letting all his/her plants relocate to avoid being stuck at the bottom. With BCAs, equilibrium emission taxes in both countries are higher, implying lower global emissions and usually higher global welfare in both games. With BCAs, the environmental more concerned country accepts that its firm partially relocates abroad, as it is rewarded with better control of global emissions, tariff revenues and higher net profits (profits minus taxes). This avoids high environmental damages and that either net profits are zero because of high subsidy levels in a “race to the bottom” or because all production plants have moved abroad.

Political corruption and accounting choices

AbstractWe examine how political corruption affects firms’ accounting choices. We hypothesize and find that firms headquartered in corrupt districts manipulate earnings downwards, relative to firms headquartered elsewhere. Our finding is robust to alternative corruption measures, alternative discretionary accrual measures, alternative model specifications, the instrumental variable approach and difference‐in‐differences analyses based on firm relocation and high profile cases. We find that firms headquartered in corrupt districts prefer income‐decreasing accounting choices and exhibit higher conservatism. Finally, we find that the effect of corruption on earnings management is more pronounced for geographically concentrated firms, for firms without political connections, for firms in politically sensitive industries, for firms with lower transient institutional investor ownership and for firms with less analyst coverage. In sum, our findings suggest that firms respond to corruption by lowering their accounting earnings.

Fuzzy AHP approach to evaluate incentive factors of high-tech talent agglomeration

To compete with the speedy revolution of high technological innovation and restarted economy for the post-COVID-19 period in China, governments and organizations should be active in attracting high-tech talent to enhance independent and indigenous R&D capability. Talent agglomeration effectiveness is the strongest endogenous force pushing competitiveness for regional economy and industrial development. Due to the complexity of high-tech talent agglomeration, there are still considerable gaps to evaluate the incentive factors. This study evaluates the influential indicator system by using a hybrid fuzzy set theory extended Analytic Hierarchy Process (AHP) approach for proximity to reality from individual, organizational and environmental dimensions. The statistical analysis is adopted to verify the results of fuzzy AHP analysis. This research explores the founding that individual incentives are more important than environmental factors, and environmental incentives are more influential than organizational incentives. Job satisfaction, welfare system, and geographical location are the highest ranking factors. High-tech start-ups should give priority to combine geographical location with political support to reserve site selection or firm relocation for a great effectiveness of high-tech talent agglomeration.

The Role of Risk Management, Sustainability Disclosure Practices, and Islamic Finance in Nigeria Business Environment

The Nigerian business environment is currently beclouded with various kinds of risks, fear, and uncertainty that culminate into the collapsing of so many businesses and the relocation of several multinational and local firms to other countries. The business and the environment are in a social contract that leaves them with both opportunities and threats hence the business cannot take place in a vacuum. The interconnectivity between businesses and their environment is that of mutuality. Mutual in the sense that the business influences its environment and the environment as well guarantees the legitimacy of the business considering the interest of all relevant stakeholders. That is, a business is influenced by its environment of operation such that its success depends on the ability to adapt to its immediate and entire environment to make the environment of businesses favorable. Therefore, the objective of this study is to explore conceptually the Nigerian Business Environment (NBE) considering the roles of risk management, sustainability disclosure practices, and Islamic finance. The method adopted by the study is the review of past investigations to gain insight into the NBE. Based on the insight from extant literature and in consonance with assumptions of legitimacy theory, the study concludes that risk management, sustainability disclosure practices, and Islamic finance promote the NBE. The study added to existing literature looking at the NBE from the present perspective (i.e. risk management, sustainability disclosure practices and Islamic finance). The study has implications for the government and policy-makers, companies, the business community, and other stakeholders in terms of creating a conducive business environment in Nigeria through the provision of infrastructure, effective corporate governance mechanisms, good stakeholder management.

Subsidies, Relocations, and Social Justice

Abstract This article examines Risse and Wollner’s discussion and rejection of several strategies a) in favour of developed countries subsidising their producers, and b) against the relocation of firms operating on their territory. It argues that their critical review of these strategies remains incomplete and therefore not decisive. It starts by bringing into relief two blind spots in their moral assessment of subsidies. The first concerns the imperfect nature of the general duties of global justice they focus on; the second concerns their understanding of the relation between these duties and duties of social justice. While addressing these two difficulties, it presents another possible strategy in support of subsidies, which Risse and Wollner fail to examine: the ‘equal citizenship’ strategy. This strategy is mobilised again in an assessment of Risse and Wollner’s treatment of relocations. In this context, some doubts are raised about the remedy Risse and Wollner prescribe to overcome both social injustices and exploitative relocations ― namely, the domestic redistribution by governments of the gains of international trade. It is argued that such a redistribution is both insufficient to combat social exclusion and threatened by the very practice of trade liberalisation that Risse and Wollner seek to defend.