Proximity and Investment: Evidence from Plant-Level Data

50 Pages Posted: 12 Nov 2011  

Xavier Giroud

Columbia Business School - Finance and Economics; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR)

Date Written: September 11, 2011

Abstract

Proximity to plants makes it easier for headquarters to monitor and acquire information about plants. In this paper, I estimate the effects of headquarters’ proximity to plants on plant investment and productivity. Using the introduction of new airline routes as a source of exogenous variation in proximity, I find that new airline routes that reduce the travel time between headquarters and plants lead to an increase in plant investment of 8% to 9% and to an increase in plants’ total factor productivity of 1.3% to 1.4%. The results are robust to controlling for local and firm-level shocks that could potentially cause the introduction of new airlines routes, they are robust when I consider only new airline routes that are the outcome of a merger between two airlines or the opening of a new hub, and they are robust when I consider only indirect flights where either the last leg of the flight (involving the plant’s home base airport) or the first leg of the flight (involving headquarters’ home base airport) remains unchanged.

JEL Classification: G31, D24

Suggested Citation

Giroud, Xavier, Proximity and Investment: Evidence from Plant-Level Data (September 11, 2011). Available at SSRN: https://ssrn.com/abstract=1958200 or http://dx.doi.org/10.2139/ssrn.1958200

Xavier Giroud (Contact Author)

Columbia Business School - Finance and Economics ( email )

3022 Broadway
New York, NY 10027
United States

HOME PAGE: http://www.columbia.edu/~xg2285/

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Centre for Economic Policy Research (CEPR) ( email )

77 Bastwick Street
London, EC1V 3PZ
United Kingdom

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