Advertisement

New business location: how local characteristics influence individual location decision?

Abstract

The aim of this paper is to identify the impact of local characteristics, such as the relative concentration of economic activities, on new business location decisions based on their sectors of economic activity. Spatial establishment-level, micro-data, pooled over time (2008–2014) was used for a typical Canadian nonmetropolitan area—the Lower St. Lawrence region—in the province of Quebec. The study was conducted on a radius of 1250 m to describe the local economic environment. Results of our employed multinomial logit model reveal that local characteristics influence the location decision of new individual establishments for most of the economic sectors. An econometric model is developed to simulate the probability that a new establishment (in a given economic sector) will be located at a given geographic location based on this location’s characteristics. Results confirm that the location decisions for new primary sector businesses are related to the presence of benefits arising from the existence of natural resources as well as those benefits associated with having large spaces (such as in the case of rural cities). New manufacturing sector businesses are mainly looking for a co-location (specialisation) pattern, with a slight preference to locate in small-sized cities. Finally, the location decisions of service sectors firms are strongly dependent on intermediate demand and on the distance to major markets.

This is a preview of subscription content, log in to check access.

Access options

Buy single article

Instant unlimited access to the full article PDF.

US$ 39.95

Price includes VAT for USA

Subscribe to journal

Immediate online access to all issues from 2019. Subscription will auto renew annually.

US$ 99

This is the net price. Taxes to be calculated in checkout.

Fig. 1
Fig. 2
Fig. 3
Fig. 4
Fig. 5
Fig. 6

Notes

  1. 1.

    For each sector, the corresponding economic activities are those whose three-digit NAICS code is part of the economic sector.

References

  1. Acs ZJ, Armington C (2006) Entrepreneurship, geography, and American economic growth. Cambridge University Press, Cambridge

  2. Alamá-Sabater L, Artal-Tur A, Navarro-Azorín JM (2011) Industrial location, spatial discrete choice models and the need to account for neighbourhood effects. Ann Reg Sci 47:393–418. https://doi.org/10.1007/s00168-010-0383-7

  3. Andersson M, Koster S (2011) Sources of persistence in regional start-up rates—evidence from Sweden. J Econ Geogr 11:179–201. https://doi.org/10.1093/jeg/lbp069

  4. Arenius P, De Clercq D (2005) A network-based approach on opportunity recognition. Small Bus Econ 24:249–265. https://doi.org/10.1007/s11187-005-1988-6

  5. Arenius P, Minniti M (2005) Perceptual variables and nascent entrepreneurship. Small Bus Econ 24:233–247. https://doi.org/10.1007/s11187-005-1984-x

  6. Artz GM, Kim Y, Orazem PF (2016) Does agglomeration matter everywhere? new firm location decisions in rural and urban markets: does agglomeration matter everywhere? J Reg Sci 56:72–95. https://doi.org/10.1111/jors.12202

  7. Audretsch DB (1995) Innovation and industry evolution. MIT Press, Cambridge

  8. Audretsch D, Falck O, Heblich S (2011) Who’s got the aces up his sleeve? Functional specialisation of cities and entrepreneurship. Ann Reg Sci 46:621–636. https://doi.org/10.1007/s00168-009-0353-0

  9. Audretsch DB, Huelsbeck M, Lehmann EE (2012) Regional competitiveness, university spillovers, and entrepreneurial activity. Small Bus Econ 39:587–601. https://doi.org/10.1007/s11187-011-9332-9

  10. Audretsch DB, Belitski M, Desai S (2015) Entrepreneurship and economic development in cities. Ann Reg Sci 55:33–60. https://doi.org/10.1007/s00168-015-0685-x

  11. Baldwin JR, Brown WM, Rigby DL et al (2008) Économies d’agglomération estimations de panel de microdonnées du secteur canadien de la fabrication. Statistique Canada, Ottawa

  12. Baumol WJ (2002) The free-market innovation machine: analyzing the growth miracle of capitalism. Princeton University Press, Princeton

  13. Beaudry C, Schiffauerova A (2009) Who’s right, Marshall or Jacobs? The localization versus urbanization debate. Res Policy 38:318–337. https://doi.org/10.1016/j.respol.2008.11.010

  14. Behrens K, Sharunova V (2015) Inter-and intra-firm linkages: evidence from microgeographic location patterns. CEPR Discussion Papers, DP 10921

  15. Bhat CR, Paleti R, Singh P (2014) A spatial multivariate count model for firm location decisions: firm location decisions. J Reg Sci. https://doi.org/10.1111/jors.12101

  16. Blanc M, Aubert F, Detang-Dessendre C (1999) Le fonctionnement des marchés du travail ruraux. Écon Rurale 250:31–39. https://doi.org/10.3406/ecoru.1999.5073

  17. Boschma RA, Frenken K (2006) Why is economic geography not an evolutionary science? Towards an evolutionary economic geography. J Econ Geogr 6:273–302. https://doi.org/10.1093/jeg/lbi022

  18. Bosma N, Sternberg R (2014) Entrepreneurship as an urban event? Empirical evidence from European cities. Reg Stud 48:1016–1033. https://doi.org/10.1080/00343404.2014.904041

  19. Brown WM, Statistique Canada, Division de l’analyse économique (2013) Productivité urbaine—qui profite des économies d’agglomération? Statistique Canada, Ottawa

  20. Capello R (2014) Classical contributions: Von Thünen, Weber, Christaller, Lösch. In: Fischer MM, Nijkamp P (eds) Handbook of regional science. Springer, Berlin, pp 507–526

  21. Capozza C, Salomone S, Somma E (2018) Local industrial structure, agglomeration economies and the creation of innovative start-ups: evidence from the Italian case. Entrep Reg Dev 30:749–775. https://doi.org/10.1080/08985626.2018.1457087

  22. Carnahan S (2017) Blocked but not tackled: who founds new firms when rivals dissolve? Strateg Manag J 38:2189–2212. https://doi.org/10.1002/smj.2653

  23. Christaller W (1966) Central places in southern Germany. Prentice Hall, Upper Saddle River

  24. Colombelli A (2016) The impact of local knowledge bases on the creation of innovative start-ups in Italy. Small Bus Econ 47:383–396. https://doi.org/10.1007/s11187-016-9722-0

  25. Dahl MS, Sorenson O (2012) Home sweet home: entrepreneurs’ location choices and the performance of their ventures. Manag Sci 58:1059–1071. https://doi.org/10.1287/mnsc.1110.1476

  26. Daunfeldt S-O, Elert N, Rudholm N (2013) Start-ups and firm in-migration: evidence from the Swedish wholesale industry. Ann Reg Sci 51:479–494. https://doi.org/10.1007/s00168-012-0536-y

  27. Delfmann H, Koster S, McCann P, Van Dijk J (2014) Population change and new firm formation in urban and rural regions. Reg Stud 48:1034–1050. https://doi.org/10.1080/00343404.2013.867430

  28. Delgado M, Porter ME, Stern S (2010) Clusters and entrepreneurship. J Econ Geogr 10:495–518. https://doi.org/10.1093/jeg/lbq010

  29. Doloreux D, Shearmur R (2012) The use of knowledge-intensive business services in SME manufacturing firms in Quebec: performance diagnosis and drivers of innovation by sector and region. INRS Centre-Urbanisation Culture Société

  30. Dubé J, Brunelle C (2014) Dots to dots: a general methodology to build local indicators using spatial micro-data. Ann Reg Sci 53:245–272. https://doi.org/10.1007/s00168-014-0627-z

  31. Dubé J, Lemelin A (2005) Estimation expérimentale des flux d’échanges interrégionaux par la méthode de minimisation de l’entropie croisée. Rev Can Sci Rég 28:514–533

  32. Dubé J, Brunelle C, Legros D (2016) Location theories and business location decision: a micro-spatial investigation in Canada. Rev Reg Stud 46:143

  33. Duranton G, Puga D (2001) Nursery cities: urban diversity, process innovation, and the life cycle of products. Am Econ Rev 91:1454–1477

  34. Duranton G, Puga D (2004) Micro-foundations of urban agglomeration economies. Handb Reg Urban Econ 4:2063–2117

  35. Ellison G, Glaeser EL (1997) Geographic concentration in US manufacturing industries: a dartboard approach. J Polit Econ 105:889–927

  36. Feldman M, Zoller TD (2012) Dealmakers in place: social capital connections in regional entrepreneurial economies. Reg Stud 46:23–37. https://doi.org/10.1080/00343404.2011.607808

  37. Figueiredo O, Guimaraes P, Woodward D (2002) Home-field advantage: location decisions of Portuguese entrepreneurs. J Urban Econ 52:341–361. https://doi.org/10.1016/S0094-1190(02)00006-2

  38. Frenken K, Van Oort F, Verburg T (2007) Related variety, unrelated variety and regional economic growth. Reg Stud 41:685–697. https://doi.org/10.1080/00343400601120296

  39. Fritsch M, Falck O (2007) New business formation by industry over space and time: a multidimensional analysis. Reg Stud 41:157–172. https://doi.org/10.1080/00343400600928301

  40. Fritsch M, Wyrwich M (2017) Persistence of regional entrepreneurship: causes, effects, and directions for future research. Int Rev Entrep 15:395–416

  41. Gaigné C, Goffette-Nagot F (2008) Localisation rurale des activités industrielles. Que nous enseigne l’économie géographique? Rev Etudes En Agric Environ-Rev Agric Environ Stud 87:101–130

  42. Glaeser EL, Kallal HD, Scheinkman JA, Shleifer A (1992) Growth in cities. J Polit Econ 100:1126–1152

  43. Glaeser EL, Kerr WR, Ponzetto GAM (2010a) Clusters of entrepreneurship. J Urban Econ 67:150–168. https://doi.org/10.1016/j.jue.2009.09.008

  44. Glaeser EL, Rosenthal SS, Strange WC (2010b) Urban economics and entrepreneurship. J Urban Econ 67:1–14. https://doi.org/10.1016/j.jue.2009.10.005

  45. Hakimi SL (1964) Optimum locations of switching centers and the absolute centers and medians of a graph. Oper Res 12:450–459

  46. Hans L, Koster S (2017) Urbanization and start-up rates in different geographies: Belgium, the Netherlands, and Sweden. Small Bus Econ. https://doi.org/10.1007/s11187-017-9967-2

  47. Harris CD (1954) The market as a factor in the localization of industry in the United States. Ann Assoc Am Geogr 44:315. https://doi.org/10.2307/2561395

  48. Helpman E, Krugman PR (1985) Market structure and foreign trade: increasing returns, imperfect competition, and the international economy. MIT Press, Cambridge

  49. Henderson JV (2003) Marshall’s scale economies. J Urban Econ 53:1–28. https://doi.org/10.1016/S0094-1190(02)00505-3

  50. Herrendorf B, Rogerson R, Valentinyi Á (2014) Growth and structural transformation. In: Handbook of economic growth. Elsevier, Amsterdam, pp 855–941

  51. Huggins R, Williams N (2011) Entrepreneurship and regional competitiveness: the role and progression of policy. Entrep Reg Dev 23:907–932. https://doi.org/10.1080/08985626.2011.577818

  52. Huiban JP, Detang-Dessendre C, Aubert F (2004) Urban versus rural firms: is there a spatial heterogeneity of labour demand? Environ Plan A 36:2033–2045. https://doi.org/10.1068/a36207

  53. ISQ (2018) Panorama des régions du Québec. INSTITUT DE LA STATISTIQUE DU QUÉBEC

  54. ISQ I de la S du (2019) Profils statistiques de la Région du Bas Saint Laurent. http://www.stat.gouv.qc.ca/statistiques/profils/region_01/region_01_00.htm. Accessed 12 Apr 2019

  55. Jacobs J (1969) The economy of cities. Random House, New York

  56. Jofre-Monseny J, Marín-López R, Viladecans-Marsal E (2014) The determinants of localization and urbanization economies: evidence from the location of new firms in spain: determinants of localization and urbanization economies. J Reg Sci 54:313–337. https://doi.org/10.1111/jors.12076

  57. Karlsson C, Dahlberg R (2003) Entrepreneurship, firm growth and regional development in the new economic geography: introduction. Small Bus Econ 21:73–76

  58. Kibler E, Kautonen T, Fink M (2014) Regional social legitimacy of entrepreneurship: implications for entrepreneurial intention and start-up behaviour. Reg Stud 48:995–1015. https://doi.org/10.1080/00343404.2013.851373

  59. Kolko Jed (2010) Urbanization, agglomeration, and coagglomeration of service industries. The University of Chicago Press, Chicago

  60. Krugman P (1991) Increasing returns and economic geography. J Polit Econ 99:483–499

  61. Krugman P (1998) What’s new about the new economic geography? Oxf Rev Econ Policy 14:7–17. https://doi.org/10.1093/oxrep/14.2.7

  62. Lee SY, Florida R, Acs ZJ (2004) Creativity and entrepreneurship: a regional analysis of new firm formation. Reg Stud 38:879–891. https://doi.org/10.1080/0034340042000280910

  63. Lee BS, Jang S, Hong Sung Hyo (2010) Marshall’s scale economies and jacobs’ externality in Korea: the role of age, size and the legal form of organisation of establishments. Urban Stud 47:3131–3156. https://doi.org/10.1177/0042098009359953

  64. Losch A (1954) Economics of location. Yale University Press, New Haven

  65. Mack EA, Rey SJ (2014) An econometric approach for evaluating the linkages between broadband and knowledge intensive firms. Telecommun Policy 38:105–118. https://doi.org/10.1016/j.telpol.2013.06.003

  66. Malecki EJ (2018) Entrepreneurship and entrepreneurial ecosystems. Geogr. Compass 12:e12359. https://doi.org/10.1111/gec3.12359

  67. Marcon E, Puech F (2010) Measures of the geographic concentration of industries: improving distance-based methods. J Econ Geogr 10:745–762. https://doi.org/10.1093/jeg/lbp056

  68. Marcon É, Puech F (2014) Mesures de la concentration spatiale en espace continu: théorie et applications. Econ Stat 474:105–131

  69. Marshall A (1890) Principles of economics: an introductory volume, 8th edn. Macmillan, London

  70. MEI M de l’Économie et de l’innovation (2019) Bas-Saint-Laurent, Portrait Régional

  71. Meijers EJ, Burger MJ, Hoogerbrugge MM (2016) Borrowing size in networks of cities: city size, network connectivity and metropolitan functions in Europe: borrowing size in networks of cities. Pap Reg Sci 95:181–198. https://doi.org/10.1111/pirs.12181

  72. Michelacci C, Silva O (2007) Why so many local entrepreneurs? Rev Econ Stat 89:615–633. https://doi.org/10.1162/rest.89.4.615

  73. Müller S (2016) A progress review of entrepreneurship and regional development: what are the remaining gaps? Eur Plan Stud 24:1133–1158. https://doi.org/10.1080/09654313.2016.1154506

  74. Nicotra M, Romano M, Del Giudice M, Schillaci CE (2018) The causal relation between entrepreneurial ecosystem and productive entrepreneurship: a measurement framework. J Technol Transf 43:640–673. https://doi.org/10.1007/s10961-017-9628-2

  75. Partridge MD, Rickman DS, Ali K, Olfert MR (2010) Recent spatial growth dynamics in wages and housing costs: proximity to urban production externalities and consumer amenities. Reg Sci Urban Econ 40:440–452. https://doi.org/10.1016/j.regsciurbeco.2010.05.003

  76. Pe’er A, Vertinsky I (2008) Firm exits as a determinant of new entry: Is there evidence of local creative destruction? J Bus Ventur 23:280–306. https://doi.org/10.1016/j.jbusvent.2007.02.002

  77. Piacentino D, Bono F, Cracolici MF, Giuliani D (2017) A spatial analysis of new business formation: replicative vs innovative behaviour. Spat Stat 21:390–405. https://doi.org/10.1016/j.spasta.2017.02.004

  78. Plummer LA, Acs ZJ (2014) Localized competition in the knowledge spillover theory of entrepreneurship. J Bus Ventur 29:121–136. https://doi.org/10.1016/j.jbusvent.2012.10.003

  79. Porter ME (1990) The competitive advantage of nations. Free Press, New York

  80. Qian H, Acs ZJ, Stough RR (2013) Regional systems of entrepreneurship: the nexus of human capital, knowledge and new firm formation. J Econ Geogr 13:559–587. https://doi.org/10.1093/jeg/lbs009

  81. Renski H (2008) New firm entry, survival, and growth in the United States: a comparison of urban, suburban, and rural areas. J Am Plann Assoc 75:60–77. https://doi.org/10.1080/01944360802558424

  82. Rogers TM (2012) Bank market structure and entrepreneurship. Small Bus Econ 39:909–920. https://doi.org/10.1007/s11187-011-9320-0

  83. Rosenthal SS, Strange WC (2003) Geography, industrial organization, and agglomeration. Rev Econ Stat 85:377–393

  84. Rosenthal SS, Strange WC (2010) Small establishments/big effects: agglomeration, industrial organization and entrepreneurship. In: Agglomeration economics. University of Chicago Press, Chicago, pp 277–302

  85. Sato Y, Tabuchi T, Yamamoto K (2012) Market size and entrepreneurship. J Econ Geogr 12:1139–1166. https://doi.org/10.1093/jeg/lbr035

  86. Schafran A, McDonald C, Lopez Morales E et al (2018) Replacing the services sector and three-sector theory: urbanization and control as economic sectors. Reg Stud 52:1708–1719. https://doi.org/10.1080/00343404.2018.1464136

  87. Scholl T, Brenner T (2016) Detecting spatial clustering using a firm-level cluster index. Reg Stud 50:1054–1068. https://doi.org/10.1080/00343404.2014.958456

  88. Schumpeter JA (1941) Capitalism, socialism, and democracy. Harper, New York

  89. Smith HL, Bagchi-Sen S (2012) The research university, entrepreneurship and regional development: research propositions and current evidence. Entrep Reg Dev 24:383–404. https://doi.org/10.1080/08985626.2011.592547

  90. Stam E (2007) Why butterflies don’t leave: locational behavior of entrepreneurial firms. Econ Geogr 83:27–50

  91. Stam E (2018) Measuring entrepreneurial ecosystems. In: O’Connor A, Stam E, Sussan F, Audretsch DB (eds) Entrepreneurial ecosystems: place-based transformations and transitions. Springer, Cham, pp 173–197

  92. Stam E, Spigel B (2018) The SAGE handbook of small business and entrepreneurship. SAGE Publications Ltd, Thousand Oaks

  93. StataCorp (2013) Stata 13 Base Reference Manual. Stata Press, College Station, TX

  94. Statistics Canada (2017a) Focus on geography series, 2016 census. http://www12.statcan.gc.ca/census-recensement/2016/as-sa/fogs-spg/select-Geo-Choix.cfm?Lang=eng&GK=CSD&TOPIC=7. Accessed 22 Feb 2018

  95. Statistics Canada (2017b) Census metropolitan area and census agglomeration definitions: 2016 census metropolitan area and census agglomeration strategic review consultation guide. https://www.statcan.gc.ca/pub/93-600-x/2010000/definitions-eng.htm. Accessed 23 Feb 2018

  96. Statistics Canada SC (2016) Population centre (POPCTR). https://www12.statcan.gc.ca/census-recensement/2016/ref/dict/geo049a-eng.cfm. Accessed 26 Mar 2019

  97. Sternberg R (2012) Do EU regional policies favour regional entrepreneurship? Empirical Evidence from Spain and Germany. Eur Plan Stud 20:583–608. https://doi.org/10.1080/09654313.2012.665030

  98. Sternberg R, Wennekers S (2005) Determinants and effects of new business creation using global entrepreneurship monitor data. Small Bus Econ 24:193–203

  99. van Stel A, Suddle K (2008) The impact of new firm formation on regional development in the Netherlands. Small Bus Econ 30:31–47. https://doi.org/10.1007/s11187-007-9054-1

  100. Wagner J, Sternberg R (2004) Start-up activities, individual characteristics, and the regional milieu: lessons for entrepreneurship support policies from German micro data. Ann Reg Sci 38:219–240. https://doi.org/10.1007/s00168-004-0193-x

  101. Weber A (1909) Theory of the location of industries. University of Chicago Press, Chicago

  102. Williams N, Huggins R, Thompson P (2017) Social capital and entrepreneurship: does the relationship hold in deprived urban neighbourhoods? Growth Change 48:719–743. https://doi.org/10.1111/grow.12197

  103. Wojan TR (2000) The composition of rural employment growth in the “new economy”. Am J Agric Econ 82:594–605. https://doi.org/10.1111/0002-9092.00049

  104. Wulff JN (2015) Interpreting results from the multinomial logit model: demonstrated by foreign market entry. Organ Res Methods 18:300–325. https://doi.org/10.1177/1094428114560024

  105. Wyrwich M, Sternberg R, Stuetzer M (2019) Failing role models and the formation of fear of entrepreneurial failure: a study of regional peer effects in German regions. J Econ Geogr 19:567–588. https://doi.org/10.1093/jeg/lby023

Download references

Author information

Correspondence to Ismaëlh Cissé.

Additional information

Publisher's Note

Springer Nature remains neutral with regard to jurisdictional claims in published maps and institutional affiliations.

Appendices

Appendix 1

See Table 4.

Table 4 Descriptive statistics of spatial characteristics’ variables, 2008–2014

Appendix 2

See Table 5.

Table 5 Three-digit NAICS code classification for related variety

Rights and permissions

Reprints and Permissions

About this article

Verify currency and authenticity via CrossMark

Cite this article

Cissé, I., Dubé, J. & Brunelle, C. New business location: how local characteristics influence individual location decision?. Ann Reg Sci 64, 185–214 (2020). https://doi.org/10.1007/s00168-019-00968-1

Download citation

JEL Classification

  • M13
  • R12
  • R23
  • O18