Explaining firm employment growth: Does location matter?

This paper addresses the question to what extent the location of a firm can be regarded as having an influence on the performance of a firm as measured by employment growth. While in theory it is widely acknowledged that 'location' should be considered as a relevant growth determinant, empirical research has so far mainly focused on firm-internal factors. The question raised in this paper is empirically verified by means of an econometric model based on a data set of circa 35,000 establishments located in the northern part of the Netherlands during the period 1994-1999. The model includes several measurements of location characteristics like the population level and growth, employment growth, spatial specialisation and cluster indicators, type of enterprise zone, and accessibility while controlling for firm-associated factors such as size, age, and business activity. Based on the fact that we find several significant coefficients we conclude that 'location matters' but that the effect differs by type of economic activity.