Does Agglomeration Matter Everywhere?: New Firm Location Decisions in Rural and Urban Markets

24 Pages Posted: 14 Jan 2016

See all articles by Georgeanne M. Artz

Georgeanne M. Artz

Iowa State University - Department of Economics

Younjun Kim

University of Nebraska at Lincoln - College of Business Administration

Peter F. Orazem

Iowa State University and IZA; IZA Institute of Labor Economics

Date Written: January 2016

Abstract

We test whether commonly used measures of agglomeration economies encourage new firm entry in both urban and rural markets. Using new firm location decisions in Iowa and North Carolina, we find that measured agglomeration economies increase the probability of new firm entry in both urban and rural areas. Firms are more likely to locate in markets with an existing cluster of firms in the same industry, with greater concentrations of upstream suppliers or downstream customers, and with a larger proportion of college‐educated workers in the local labor supply. Firms are less likely to enter markets with no incumbent firms in the sector or where production is concentrated in relatively few sectors. The same factors encourage both stand‐alone start‐ups and establishments built by multiplant firms. Commuting decisions exhibit the same pattern as new firm entry with workers commuting from low to high agglomeration markets. Because agglomeration economies are important for rural firm entry also, policies encouraging new firm entry should focus on relatively few job centers rather than encouraging new firm entry in every small town.

Suggested Citation

Artz, Georgeanne M. and Kim, Younjun and Orazem, Peter Francis, Does Agglomeration Matter Everywhere?: New Firm Location Decisions in Rural and Urban Markets (January 2016). Journal of Regional Science, Vol. 56, Issue 1, pp. 72-95, 2016. Available at SSRN: https://ssrn.com/abstract=2715231 or http://dx.doi.org/10.1111/jors.12202

Georgeanne M. Artz (Contact Author)

Iowa State University - Department of Economics ( email )

260 Heady Hall
Ames, IA 50011
United States

Younjun Kim

University of Nebraska at Lincoln - College of Business Administration ( email )

1240 R Street
P.O. Box 880405
Lincoln, NE 68588-0405
United States

Peter Francis Orazem

Iowa State University and IZA ( email )

260 Heady Hall
Ames, IA 50011
United States
515-294-8656/515-294-7740 (Phone)
515-294-0221 (Fax)

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
0
Abstract Views
155
PlumX Metrics