Agglomeration or Market Access? The Defining Factors of Firms' Location Choice

34 Pages Posted: 10 Jul 2023

See all articles by Dennis Gaus

Dennis Gaus

German Institute for Economic Research (DIW Berlin), Students

Georg Hirte

Technische Universität Dresden Institute of Transport & Economics

Date Written: June 2023

Abstract

As research indicates a gap between complex scientific measures of accessibility and simpler proxies used by firms, this paper analyses the impact of several market access indicators on the location decision of firms. It compares the role of inter- and intra-industry agglomeration as proxies of access with a newly developed gravity-based indicator incorporating transport distances and industry relations. The estimation results of a nested mixed multinomial logit model, based on a sample of 110,083 German firms, provide evidence that agglomeration effects play an essential role in firms’ location choice, whereas the complex market access measure does not have a significant impact. This outcome holds true for large as well as small and medium sized enterprises and is confirmed in several robustness checks. Thus, the paper provides guidance to further research on companies’ location decisions, highlighting that access indicators should be chosen specifically for the scientific context, as well as to firms to make more efficient location choices from the perspective of market access.

Keywords: Transportation, accessibility, location choice, agglomeration, market access

JEL Classification: L14,O18,R12,R32

Suggested Citation

Gaus, Dennis and Hirte, Georg, Agglomeration or Market Access? The Defining Factors of Firms' Location Choice (June 2023). DIW Berlin Discussion Paper No. 2045, Available at SSRN: https://ssrn.com/abstract=4505434 or http://dx.doi.org/10.2139/ssrn.4505434

Dennis Gaus (Contact Author)

German Institute for Economic Research (DIW Berlin), Students ( email )

Mohrenstraße 58
Berlin, 10623
Germany
+49 (0)30 89789-585 (Phone)

Georg Hirte

Technische Universität Dresden Institute of Transport & Economics ( email )

Würzburger Str. 35
Dresden, 01062
Germany

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