From Russia with Love: The Impact of Relocated Firms on Incumbent Survival
48 Pages Posted: 22 Jun 2010 Last revised: 16 Oct 2012
Date Written: July 1, 2012
We identify the impact of local firm concentration on incumbent performance in a historic setting that has quasi-experimental characteristics. When Germany was divided after World War II, many firms in the machine tool industry fled the Soviet-occupied zone to prevent expropriation. We show that the regional location decisions of these firms upon moving to western Germany were driven by non-economic factors and heuristics rather than existing industrial conditions. Relocating firms increased the likelihood of incumbent failure in destination regions, a pattern that differs sharply from new entrants. We further provide evidence that these effects are due to increased competition for local resources.
Keywords: Agglomeration, competition, firm dynamics, labor, Germany
JEL Classification: R10, L10, H25, O10, J20
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