Firm Relocation Research Articles

Wages and Commuting: Quasi-natural Experiments' Evidence from Firms that Relocate

We examine individual-level compensating differentials for commuting distance in a quasi-natural experiment setting by examining how wages respond to changes in commuting distance induced by firm relocations. This set-up enables us to test for the relevance of job search frictions within labour market models. Due to the quasi-experimental set-up, we are able to avoid a range of endogeneity issues. We demonstrate that a 1 km increase in commuting distance induces an almost negligible wage increase in the year after the relocation but a more substantial wage increase of about 0.15% three years later. © 2013 Royal Economic Society.

Carbon tariffs and cooperative outcomes

In the absence of an international environmental agreement (IEA) on climate change, a country may be reluctant to unilaterally implement environmental actions, as this may lead to the relocation of firms to other, lax-on-pollution countries. To avoid this problem, while still taking care of the environment, a country may impose a carbon tariff that adjusts for the differences between its own carbon tax and the other country's tax. We consider two countries with a representative firm in each one, and characterize and contrast the equilibrium strategies and outcomes in three scenarios. In the first (benchmark) scenario, in a first stage the regulators in the two countries determine the carbon taxes noncooperatively, and in a second stage, the firms compete à la Cournot. In the second scenario, the regulators cooperate in determining the carbon taxes, while the firms still play a noncooperative Cournot game. In the third scenario, we add another player, e.g., the World Trade Organization, which announced a border tax in a prior stage; the game is then played as in the first scenario. Our two major results are (i) a border-tax adjustment (BTA) mimics quite well the cooperative solution in setting the carbon taxes as in scenario two. This means that a BTA may be a way around the lack of enthusiasm for an IEA. (ii) All of our simulations show that a partial correction of the difference in taxes is sufficient to maximize total welfare. In short, the conclusion is that a BTA may be used as a credible threat to achieve an outcome that is very close to the cooperative outcome.

Book review: Work, Locality and the Rhythms of Capital: The Labour Process Reconsidered, by Jamie Gough

Jamie Gough Work, Locality and the Rhythms of Capital: The Labour Process Reconsidered, Continuum: New York, 2003; 326 pp: 0826462847, $178.95 (hbk) Economic geography's engagement with Marxism has been a chequered one. Despite a promising beginning in the late-1970s and the important theoretical contributions of David Harvey in reading Marx geographically, since the mid-1980s there has been a steady decline in economic geography's interest in Marxism. This reflects both seemingly unresolved problems in Marxian analysis and the rise of more institutional and post-structural perspectives. For many economic geographers, the utility of Marxism to explain more micro or local-scale variegation is in doubt, and these include Storper (2001:158), who dismisses Marxism for 'never [having] been able to go beyond large-scale descriptions to cause-and-effect analyses of the detailed internal dynamics of capitalism'. It is refreshing, then, to find that Jamie Gough's Work, Locality and the Rhythms of Capital: The Labour Process Reconsidered represents a robust defense of Marx and Marxist research which will be of great interest both within geography and the social sciences. Most notably, Gough deploys labour process theory to examine the restructuring of London manufacturing between 1976 and 1982. Using a longitudinal survey of London manufacturing firms, he examines the critical period in which the post-war crisis of British manufacturing reached its climax. One of Gough's goals is to illustrate the dynamics of this restructuring in terms of in situ change and firm relocation. Gough uses his analysis to explore the insights of Marxist theory, especially regarding the labour process. Recent debates on restructuring and social change have largely by-passed the labour process which was the object of intense theorising in the 1970s and 1980s. However, Gough reinvigorates this concept not by revisiting the narrow and often fruitless discussions of whether labour control and deskilling are the principal features of the capitalist labour process, but as a critical lens to account for both the fragmented and collective nature of the working class under capitalism. While post-structural and other non-Marxian frameworks have emphasised difference, they rely on non-work identities and have either not viewed the labour process as significant in the creation of difference, and/ or have not seen its possibilities in overcoming this between workers. One of the strengths of Gough's analysis is that he does this by locating individual labour processes and their role in the construction of working-class difference and commonality as part of a nested hierarchy of capitalist accumulation. Gough divides his study into three main parts. In Part I, he develops a theory of local economies and their relationship with global and firm scale processes. This section is abstract, and reviews debates on the dynamics of workplace change in the context of the accumulation of capital. Gough adds some new insights into value theory while differentiating Marxian political economy from other approaches. Thus he argues that innovation and increased product quality by firms represents a value productivity strategy as opposed to volume productivity, which focuses on intensifying labour output, and that these strategies, while strongly related, can come into conflict with each other. This emphasis on the dialectical nature of capitalist development contrasts with institutionalist and other approaches, since the latter have a more narrow focus on use-value, rather than on the necessary contradictions between use and exchange-value. Similarly, he points out that while institutionalist geographers have valuable insights into the role of the often regionally based socialisation of labour and firms, they underestimate the vulnerability of regions to disruption by the under- and over-accumulation of capital. Part II focuses on the experience of London manufacturing firms. …

What Makes Firms Leave the Neighbourhood?

Limited attention has been paid to neighbourhood conditions as a driver of firm relocation choices. Using a panel dataset (1999–2006) of actual firm relocations in the Netherlands, the effect of different neighbourhood conditions on firms’ propensity to relocate was estimated. Results show that, besides firm and regional characteristics, neighbourhood conditions also affect firms’ relocation choices, but which conditions matter depends on the firm’s industrial activity and size. The relocation decision of consumer services in particular is affected by neighbourhood conditions, while the choice of manufacturing, wholesale and business services firms is affected more by increases in population density. Nevertheless, a higher number of shops, cafes and restaurants and a more attractive physical environment do lower the probability that business services leave the neighbourhood, while manufacturing and wholesale firms are more inclined to leave neighbourhoods when a higher share of consumer services is not in use.

Keep costumes out, keep trains in: defining and defending spaces for “good jobs” in a Rust Belt city

The re-industrialization of brownfields has become an important economic redevelopment strategy in many “Rust Belt” cities, and labor-community coalitions have sought to ensure that such projects bring economic justice through good jobs to inner-city neighborhoods with high rates of unemployment. These coalitions have in many cases succeeded in establishing geographically defined job standards, such as living wage ordinances and community benefits agreements, but few studies have investigated how such “spatial fixes for labor” influence or fail to influence the relocation and investment decisions of firms. In this article, we compare and contrast two efforts to define and defend inner-city brownfields redevelopment projects as spaces for good local jobs in the city of Milwaukee, Wisconsin. We find that the influence of spatially defined job standards on relocation decisions varied with the different scales of political engagement and economic mobility involved in each case. In addition, we identify a common political factor in these decisions that previous research in labor geographies has not emphasized: the discursive trivialization of a firm’s primary product. In combination, the two cases suggest that future geographic research on economic justice and the agency of labor and its allies needs to attend both to the complex scalar dimensions of geographically defined job standards and to the roles of nonhuman products in political controversies over redevelopment.

Global, regional and local: new firm formation and spatial restructuring in China’s apparel industry

The rise of China as the ‘world factory’ has been attributed to the export-oriented industrialization largely driven by some fundamental transformations unfolding in China’s economic, political and cultural arenas, since the Reform and Opening-Up policies. As production costs and competitive pressures both rise, the flexible business environment that export-led production used to embed in has undergone dramatic restructuring and this has further pushed forward new rounds of spatial restructuring and industrial relocation, especially in China’s highly export-oriented apparel industry. Using a large firm-level dataset on new firm formation, we show the articulation of global, regional and local factors are shaping the new firm formation pattern and industrial relocation in interactional and collective ways. The econometric estimations also indicate the ways in which and the extents to which these factors affect firm location choice are highly determined by firm-specific capability.

Geographical dynamics and industrial relocation: spatial strategies of apparel firms in Ningbo, China

China’s emergence as a key exporter to the world has relied on low-wage and unskilled or semi-skilled labor and industrial clustering. The apparel industry exemplifies this export-oriented development model. Production and employment have become heavily concentrated in the coastal regions of east and southeast China. With growth in other sectors, prices, land costs, wages, and competitive pressures have all risen. This paper examines the diverse trajectories of firm relocation. As many studies on the driving mechanism of firm relocation have lagged or failed to disclose the full view, we develop a comprehensive tri-polar analytical framework that allows us to analyze the diversity of trajectories of firm relocation in the global, regional, and local context. The empirical analysis applies this framework to the apparel industry in the city of Ningbo, which is one of the biggest apparel clusters in China. Through an analysis of several case studies, we show the articulation of global, regional, and local factors that are co-shaping apparel firm relocation processes. We also show that the extent to which these factors affect a firm’s spatial strategies is highly dependent on the firm’s characteristics. Lastly, this paper examines the opportunities for local suppliers generated by firm relocation.

Real Estate Determinants of Firm Relocation in Urban Residential Neighbourhoods

AbstractReal estate factors, such as property ownership, size and age, are generally not accounted for in research on revealed relocation decisions of firms. This is remarkable, as entrepreneurs often suggest that real estate characteristics at the property level provide an explanation for firm relocation behaviour in addition to more‐frequently tested drivers of firm relocation. We assess the role of real estate determinants, focusing on firms in urban residential neighbourhoods, differentiating between firms located in residential and commercial properties. We find that property ownership is negatively related to relocation likelihood, while being located in property with multiple users is positively related to relocation likelihood. For firms in residential properties high property age and large property size limits firm relocation. Our findings confirm that real estate characteristics are important determinants for relocation likelihood of firms, suggesting that the structure of neighbourhood housing stocks can be linked to the mobility pattern of local firms.

Firm relocation as a potential solution for environment improvement using a SWOT-AHP hybrid method

Global economic expansion and increasing concentration of people in the large cities, especially in developing countries leads to some environmental issues such as air pollution. Relocation of the firms as a great air pollutant can be an appropriate alternative for diminishing these pollutions. Yet, there is a lack of research about factors precluding firm relocation with respect to decision making factors when determining whether or not to relocate. Thus, the purpose of this case study is to examine firm relocation decision-making factors and to apprehend the role of environment issues in making them using a combination of SWOT matrix and Analytic Hierarchy Process (AHP). The combination yields analytically determined priority factors and makes them commensurable. The results indicated that decision makers at this firm consider weaknesses, more importantly than strengths, opportunities and threats. Specifically, eradicating from a large market is the most significant factor for decision makers and notably diminishing air pollution as a governmental concern ranked third.

Why Firms Relocate Their Production Overseas? The Answer Lies Inside: Corporate, Logistic and Technological Determinants

The paper analyses the drivers of international production relocation using a model built on intra-corporate factors. The results of an empirical research on an original and thorough data base for the Spanish automobile parts sector over the period 2001-2008 show the impact of corporate restructuring strategies on flexibility for transferring resources overseas. In particular, the larger the number of alternative plants in other countries, the greater the operational flexibility and, therefore, the more likely relocation will be. Second, lean supply requirements and technological complexity in the product or process at production plant level are both serious barriers to mobility. Finally, our results confirm that sunk costs are irrelevant in comparison with corporate factors.

Corporate Tax Reductions, Cross-Border Ownership and Welfare

In this paper, a three-country model incorporating the cross-border ownership of stock and international firm relocation is constructed. Using this model, the effects of a reduction in the corporate tax on welfare in all three countries is examined. The findings indicate that if the country undertaking the reduction is moderately rich, and one of the two remaining countries is rich while the other country is poor, the tax reduction not only brings about a positive effect on its own welfare, but also increases the welfare of the rich foreign country and lowers that of the poor foreign country.

Who are the Winners and the Losers?: Relocation Effects of Emission Credit Trading

In this paper, we explore who are the winners and losers of the emission control policy via credit trading and the carbon-offset program. To focus on the long-term effects of firm relocation, we employ a two-region model of monopolistic competition and assume that the rural area has an advantage in terms of the availability of absorption sources. The main findings are as follows. First, without carbon-offset programs, strengthening the emission controls drives firms to relocate from the rural to the urban area, where the relative welfare is improved. Second, in the case with a carbon-offset program, strengthening emission controls has mixed effects, and the transport cost of firm products is a key parameter. When the transport cost is sufficiently high, the introduction of emission controls with an offsetting system lowers the firm share and the relative welfare in the urban area, while the reverse occurs when the transport cost is low. Finally, in the case allowing for labor mobility, the results are similar to the immobile-labor case with lower transport costs if the initial equilibrium is interior. This story tells us that some redistribution policies might be required under the emission control with/without carbon-offset programs.

Why Firms Relocate Their Production Overseas? The Answer Lies Inside: Corporate, Logistic and Technological Determinants

The paper analyses the drivers of international production relocation using a model built on intra-corporate factors. The results of an empirical research on an original and thorough data base for the Spanish automobile parts sector over the period 2001-2008 show the impact of corporate restructuring strategies on flexibility for transferring resources overseas. In particular, the larger the number of alternative plants in other countries, the greater the operational flexibility and, therefore, the more likely relocation will be. Second, lean supply requirements and technological complexity in the product or process at production plant level are both serious barriers to mobility. Finally, our results confirm that sunk costs are irrelevant in comparison with corporate factors.

Estimating a Dynamic Equilibrium Model of Firm Location Choices in an Urban Economy

We develop a new dynamic general equilibrium model to explain firm entry, exit, and relocation decisions in an urban economy with multiple locations and agglomeration externalities. We characterize the stationary distribution of firms that arises in equilibrium. We estimate the parameters of the model using a method of moments estimator. Using unique panel data collected by Dun and Bradstreet, we find that our model fits the moments used in estimation as well as a set of moments that we use for model validation. Agglomeration externalities increase the productivity of firms by about 8 percent. Economic policies that subsidize firm relocations to the central business district increase agglomeration externalities in that area. They also increase economic welfare in the urban economy.

The economic impact of Special Economic Zones: Evidence from Chinese municipalities

The paper exploits a unique Chinese municipal dataset to assess the impact of Special Economic Zones on the local economy. Comparing the changes between the municipalities that created a SEZ in earlier rounds and those in later waves, I find that the SEZ program increases foreign direct investment not merely through firm relocation, and does not crowd out domestic investment. With dense investment in the targeted municipality the SEZ achieves agglomeration economies and generates wage increases for workers more than the increase in the local cost of living. The effects are heterogeneous: for zones created later the benefits are smaller while the distortions in firm location behavior are larger than those for the early zones. Municipalities with multiple SEZs experience larger effects than those with only one SEZ.

The Impact of Urban Enterprise Zones on Establishment Location Decisions: Evidence from French Zfus.

In this paper, we study the impact of a French enterprise zones program --- the Zones Franches Urbaines (ZFUs) policy --- on establishments' location decisions. Our empirical analysis is based on a micro-geographic dataset which provides exhaustive information on the location of establishments in France over the period 2000-2007 at the census block level. We use a difference in difference approach combining spatial and time differencing. We also do triple difference estimations, using the fact that targeted urban areas have been selected in different waves over time. Finally, we exploit a discontinuity in the eligibility criteria of the policy as an exogenous source of variation to estimate the impact of the treatment. Our results show that the French ZFU policy has a positive and sizable impact on location choices. However, we also find that the policy mostly generates displacement effects, in particular through relocation of firms from the un-treated to the treated part within municipalities. Finally, the impact is shown to be highly heterogeneous across zones, firms and industries. The overall cost of moving establishments within municipalities is relatively high.

Exploring the role of the neighbourhood in firm relocation: differences between stayers and movers

Most firm relocations take place across rather short distances, indicating that firms are in general quite place-attached. Still, at the local level, weaker neighbourhoods are characterised by relatively high firm out-migration figures, which may be the result of unfavourable local business conditions. Through a qualitative study of 40 entrepreneurs from weaker neighbourhoods, equally divided between firms that relocated (movers) and firms that did not (stayers), this paper studies to what extent characteristics of the neighbourhood itself influence either past firm relocation decisions or future firm relocation propensity. The results show that the neighbourhood plays only a modest role in firm relocation decisions and propensity, and when neighbourhood characteristics are mentioned as push factors, they are in general outweighed by investments or relocation costs in the decision-making process. Because most firm relocation decisions, both in the past and in the future, are related to aspects of the business property, rather than consequences of other neighbourhood characteristics, maintaining or creating a diverse supply of business properties within a neighbourhood may prevent most potential movers from leaving the neighbourhood much more than neighbourhood liveability improvement measures.

Firm relocation patterns incorporating spatial interactions

This paper developed a relocation pattern for analyzing decisions regarding the relocation process of individual firms by using discrete choice models. Within this framework, three decision points in the relocation process are maintained in the micro-simulation modeling. The first decision that is move or non-move is modeled by using a binary logit form with the outcome of the probability of moving. The second decision, choosing the destination region, is modeled as a multinomial logit model with the outcome of the conditional probability of choosing a region. The final decision, choosing the new zone, is estimated by considering the spatial interactions. For example, the correlation among firms in the deterministic term and the spatial correlation among zones in the error term are considered by mixed logit models. The results of the study indicated that large firms and older firms have a lower probability of relocation. Moreover, this research found out that migrating firms are more attracted in regions with high accessibility. Finally, spatial factors and land prices in a given zone strongly affect the zone choice decision-making process of all firms.

Firm relocations in the Netherlands: Why do firms move, and where do they go?

AbstractThis study analyses determinants of business relocation and identifies regional characteristics which attract relocating firms. Results indicate that the relocation decisions of firms are sector‐dependent, and the migratory behaviour of firms in knowledge‐intensive sectors notably differs from that in less knowledge‐intensive sectors. Predominantly low‐tech and medium‐low‐tech manufacturing and less knowledge‐intensive service firms paying high average salaries have a higher probability to move out of their present location. For less knowledge‐intensive service firms, the average municipal wage negatively affects their propensity to relocate, while those located in municipalities with high sector‐specific wages have an increased likelihood to move. Relocating firms are generally attracted by densely populated municipalities with high wage levels, and primarily service firms are drawn to municipalities which are specialized in the firm's own sector and appeal to individuals. Sector‐specific wages may either attract, or deter firms, suggesting that this variable may capture both the cost and the quality of the locally available workforce.

Footloose: An analysis of the drivers of firm relocations over different distances

AbstractThis paper examines the differences in the drivers of short and long distance firm relocations by conducting an event history analysis on a panel dataset of Dutch firms. Our findings indicate that short distance relocations (within municipalities and labour markets) are triggered by growth and the corresponding need for more space, while longer distance relocations are mainly influenced by regional characteristics. The spatial concentration of similar or related firms, a higher level of urbanization and R&D intensity keep firms from leaving their labour market region, but firms are more inclined to leave regions with a higher share of innovative firms.