Understanding Firms Relocation and Expansion Decisions Using Self- Reported Factor Importance Rating +

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1 The Revew of Regonal Studes 2008, Vol. 38, No. 1, pp Understandng Frms Relocaton and Expanson Decsons Usng Self- Reported Factor Importance Ratng + Wuyang Hu, Lnda J. Cox, Joan Wrght, and Thomas R. Harrs ABSTRACT. Usng ndvdual busness surveys, ths study examnes the most mportant factors for frms decsons to relocate or expand n the past as well as ther ntenton to relocate or expand n the future. Results ndcate that factors related to frms nternal characterstcs, features of locaton stes, and the general economc envronment may affect frms past and future decsons. These factors are found to be generally consstent n ther mpact upon the past and future decsons wth several notceable dfferences. The hypothess of footloose frms s supported by ths study. Key Words: Busness retenton; frm locaton JEL Classfcatons: R11, R30 I. INTRODUCTION In order to understand the spatal redstrbuton of natural resources, labor, the producton of goods and servces, and wealth, the behavor of ndvdual busnesses must be examned (Marott, 2005). One of the top economc development prortes of a government s to attract and retan desrable frms (van Djk and Pellenbarg, 2000). The relocaton of a frm to a partcular regon ncreases the demand for the regon s resources and may generate demand for outputs from other local producers. Ths multpler effect may cause the benefts of a new frm to a local muncpalty to be greater than those from ts drect nput demand (Harrs et al., 2000). The out-mgraton of a frm, on the other hand, wll have the opposte effect and may even reduce local nput demand (Skba, 2006). Snce the locaton and relocaton of a frm nvolves many ndvduals, from cty planners, real estate developers and constructon staff, to professonals n trade agreements, a tremendous effort s requred for attracton and retenton programs. At the same tme, ths task s also one of the most challengng decsons frms make n ther growth cycles. Clearly, one of the drect consequences of frm relocaton s ts mpact on the dstrbuton of wealth across dfferent regons (Van Djk and Pellenbarg, 2000). A local government may be successful n attractng a large number of frms and reap the benefts of ncreased job opportuntes and government revenues. A developng naton may negotate the expanson of exstng frms or even the relocaton of frms n order to collect smlar benefts. Regardless of the scale, any ncreases come at the expense of the regon that the frms are leavng. Frm relocatons contrbute to changes n the regon s economc landscape (Reum and Harrs, 2006). Varous polces may motvate or dscourage relocaton, whle smultaneously + The Western Rural Development Center provded partal fundng for ths research Hu s afflated wth the Department of Agrcultural Economcs, Unversty of Kentucky at Lexngton. Cox s afflated wth the Department of Natural Resource and Envronmental Management, Unversty of Hawa at Manoa. Wrght and Harrs are afflated wth the Department of Resource Economcs, Unversty of Nevada at Reno. Correspondng author: Lnda Cox, Unversty of Hawa at Manoa, Department of Natural Resource and Envronmental Management, C1920 Edmonson Road, FT 62, Honolulu, HI E-mal lcox@hawa.edu Southern Regonal Scence Assocaton ISSN SRSA, 1601 Unversty Avenue, PO Box 6025, Morgantown, West Vrgna , USA.

2 68 The Revew of Regonal Studes, Vol. 38, No 1, 2008 nducng changes n the polcy-makng process. Consequently, the nteracton between governments spatal polces and frm relocaton decsons s also of great research nterest (e.g., Wohlgemuth and Klkenny, 1998). To understand the dynamcs assocated wth busness attracton and retenton, the factors that affect a frm s decson to relocate must be examned. Ths paper analyzes the relocaton and expanson behavor of busnesses across the U.S. usng a framework that ncludes the past and future preferences for relocaton and/or expanson of ndvdual frms. The frm s propensty to relocate/expand s evaluated usng a lkelhood scale. Self-reported explanatory factors are used to measure the degree to whch varous factors affect a frm s decson to relocate. A revew of the lterature on frm relocaton summarzes the factors that researchers have found contrbute to a frm s decson to relocate and examnes the methodologes that could be used to analyze the frm s decson. Followng the lterature revew, the technques used to collect the frm level data and a seres of emprcal models are presented. The results of the models are then presented, along wth the conclusons and mplcatons of the research. 2. LITERATURE RELEVANCY AND CONTRIBUTION Research on frms relocaton decsons has evolved over the past forty years. Pellenbarg, van Wssen, and van Djk (2002) and others refer to the 1970s as the golden age of frm relocaton studes. In the 1980s, research n ths area almost dsappeared and dd not revve untl the late 1990s. Van Djk and Pellenbarg (2000) conclude that relocaton trends correspond wth the economc cycles of regons where the n- and out-mgraton of frms occur. Ths concluson s supported by the noton that frms are proft maxmzng enttes and they constantly seek optmal opportuntes. These opportuntes may nclude shfts n the product mx, changes n consumer preferences, technology advances, government regulatons, and other demand and supply determnants. Van Djk and Pellenbarg (2000), Pellenbarg, van Wssen, and van Djk (2002), and Brouwer, Marott, and Van Ommeren (2004) revew the theoretcal frameworks that explan frm locaton and relocaton, ncludng the neo-classcal approach, the behavoral approach, and the nsttutonal approach. The neoclasscal approach essentally uses the prncple of cost mnmzaton or proft maxmzaton to analyze relocaton behavor. A frm s always assumed as fully ratonal wth perfect nformaton on relevant parameters. The behavoral approach takes frm-specfc context varables nto consderaton, whch may n turn lmt the frm s ablty to acqure full nformaton. The context varables may nclude factors that are not commonly used n cost mnmzaton. The nsttutonal approach, however, recognzes both frm-specfc context and the socal, cultural, and poltcal context under whch the relocaton decsons are made. The revews conclude that the nsttutonal approach s the most comprehensve because t ntegrates the frst two approaches and offers further nsghts; they recommend that t be adopted more wdely n emprcal research. Ths study consders these suggestons by ncorporatng factors that represent the nsttutonal mpacts. Gven an approprate theoretcal framework, the focus then turns to those specfc factors that contrbute most to the frm s decson. The lterature provdes a seres of canddates to be consdered. Van Djk and Pellenbarg (2000) group the factors nto three categores: frm nternal, frm external, and locaton. The frst category ncludes nternal factors such as management structure and employment. The second category ncorporates external factors such as government polcy and regonal economc nfrastructure. The last group contans locaton- Southern Regonal Scence Assocaton 2010.

3 HU ET AL.: FIRM RELOCATION AND EXPANSION DECISIONS 69 specfc factors lke market sze and dstance measures. The authors fnd that nternal factors are the most mportant determnants. Schmenner (1980) and Marott (2005) also conclude that nternal factors are lkely to be the most powerful n determnng relocaton behavor. Some studes, however, show that external factors may be equally mportant. The Handbook of Regonal and Urban Economcs (Vernon and Thsse, 2004) dfferentates the role of natural advantages and related shppng/transportaton costs, versus the role of agglomeraton economes. De Bok and Sanders (2005) fnd that the dstance to transportaton facltes s the most mportant aspect. Pellenbarg, van Wssen, and van Djk (2002), after studyng frm relocaton patterns n several European countres, dscover that the dstance to transportaton s a key factor and note that more frms relocate wthn the same muncpalty rather than dstant locatons. Knoben and Oerlemans (2005) support the concluson that the geographc features of varous stes play a crtcal role n decsons to relocate. Despte the commonly held vew that tax breaks or other local fnancal ncentves are a major factor n a frm s relocaton decson, Gumarães, Rolfe, and Woodward (1998) and Fsher and Peters (1998) fnd evdence that these benefts are not lkely to motvate a frm s relocaton. Fsher and Peters (1998) comment that such tax reductons do not lead to equalty and a balanced dstrbuton of wealth across a socety. Wohlgemuth and Klkenny (1998) dentfy mxed evdence of the effects of tax breaks on relocaton decsons. Several studes have evaluated the effect of some non-conventonal factors on a frm s decson to relocate. Grolleau, Lakhal, and Mzough (2004) and Gumarães, Fgueredo, and Woodward (2004) consder the mpact of ethcal factors such as farness and socal balances, whle Fernandez (2008) examnes the effect of a potental ste s ethnc and racal components to the frms relocaton decson. Smlarly, Skba (2006) shows that the composton of the workforce, wth respect to mmgrants, s lkely an mportant factor n the locaton of producton. To supplement ther postulaton that factors from all three types of approaches (neo-classcal, behavoral, and nsttutonal) are mportant, van Djk and Pellenbarg (2000) argue that the land requred and the recreatonal demands of employees be consdered. These authors also rase the queston of whether government polces not drectly related to economc development, such as polluton control, may affect the decson. Gumarães, Fgueredo, and Woodward (2004), on the other hand, dd not fnd a dscernable relatonshp between envronmental legslaton and frm relocaton behavor. Ths paper contans an analyss of frm relocaton that has several unque characterstcs. Most of the prevous studes use macro data to examne an overall trend for frm relocaton and ts mpact on the local economy. The few studes that used mcro data to explan ndvdual frm relocaton behavor analyzed ether ther past behavor or ther future plans. Ths type of approach fals to capture the natural contnuum n a frm s decson makng by gnorng the nteractons between decsons across dfferent tme frames. Except for an early study conducted by Schmenner (1980), whch only used nternal factors as explanatory varables, the current analyss s one of the very few that can offer a comprehensve vew of a frm s relocaton decson. In contrast to Schmenner s (1980) work, ths paper consders the decsons to expand or to relocate to a dfferent ste jontly. Expanson usually also requres a large amount of resources; therefore, ths consderaton can provde more nformaton to understand frms mgraton behavor than consderng just relocaton alone (Schmenner, 1980). In addton, as Pellenbarg van Wssen, and van Djk (2002) pont out, the mpact of nternal factors s not lkely to be well nvestgated. Factors relevant to the nsttutons and Southern Regonal Scence Assocaton 2010.

4 70 The Revew of Regonal Studes, Vol. 38, No 1, 2008 polcy should be gven more focus than the neo-classcal and behavoral approaches. Gven the large number of factors suggested n the lterature, collectng data relevant to all the potental aspects s not cost effectve. In ths paper, a self-reported ratng framework s adopted whch reduces the cost of the data collecton process. Indvdual frms are quered about whch factors play a role n relocaton/expanson decsons; the frm leaders rate the mportance of each factor. These ratngs can then be analyzed to determne f any sgnfcant relatonshp can be found between a factor and the decson to relocate/expand. Ths approach has been used successfully n other types of research, such as consumers purchasng decsons (Hu, 2006a). Whle any analyss consderng only a fxed number of factors s lkely to have consdered only a subset of all the relevant factors and may suffer from the mssng varable problem, ths study greatly reduces the cost of data collecton and decreases the lkelhood of bas due to mssng varables. The thrd unque feature of ths study s that t ncorporates the arguments of Gumarães, Rolfe, and Woodward (1998) and Fsher and Peters (1998) that government tax ncentves may not accurately predct frm relocaton. Thus, ths paper does not drectly focus on tax credts, although they are ndrectly consdered n the self-reported factor ratngs. 3. DATA The data used n ths study were collected durng 2003 and 2006, as part of a jont effort between the Unversty of Hawa, Manoa, Montana State Unversty, and the Unversty of Nevada. A pre-survey sample of 2,129 and 2,700 frms was purchased n 2003 and 2006 from Dun and Bradstreet, that contaned a general descrpton of U.S. frms ncludng sze, revenue, contact nformaton, and CEO s or manager s name. A stratfed approach was used to create the populaton sample for the surveys (questonnares) that ncluded frms from the fastest growng and hghest payng four-dgt NAICS ndustry sectors of the Dun and Bradstreet data sets. To select these frms, four-dgt NAICS ndustry sectors were frst ranked based on ther percentage change of annual sales and employee salares accordng to data publshed by the Bureau of Labor Statstcs. Then the top 100 sectors were selected out of the total of 317 four-dgt NAICS ndustry sectors. These essentally nclude frms n all two-dgt NAICS ndustres. A more detaled classfcaton (e.g., fve- or sx-dgt NAICS code) of ndustry sectors could have been used, but a four-dgt system gves a scope detaled enough to dfferentate varous sectors and also general enough to manage. After the populaton sample had been created, samplng of frms for survey was conducted as follows. Fve frms were selected at random from each of the four-dgt NAICS ndustry codes n the sample. If a frm dd not agree to partcpate (complete the questonnare), the next frm on the lst was contacted. If a frm dd not provde any nformaton on ther past or future relocaton/expanson actvtes, the response was deemed as unusable. If all fve frms were contacted and not at least one usable survey was obtaned, another lst of fve was compled. The total number of completed questonnares, after screenng off those that were not elgble or damaged, was 213 of 2,129 for the 2003 data (10.0 percent response rate) and 1,064 of 2,700 for the 2006 data (39.4 percent response rate), consttutng a total response rate of 26.4 percent (1,277 of 4,829 frms). The geographc dstrbuton of the frms n ths sample s llustrated by Fgure 1. In the frst survey (2003), after the sample had been selected, the survey questonnare was sent to the manager or the CEO of each frm. Followng ths frst round of surveys, remnder cards were sent to those frms that had not returned ther survey after 2 weeks. Southern Regonal Scence Assocaton 2010.

5 HU ET AL.: FIRM RELOCATION AND EXPANSION DECISIONS 71 FIGURE 1. Geographc Dstrbuton of Frms n Sample Southern Regonal Scence Assocaton 2010.

6 72 The Revew of Regonal Studes, Vol. 38, No 1, 2008 Due to the lmted response from the mal survey, telephone surveys were conducted from sample groups untl an adequate sample had been obtaned. In 2006, all surveys were conducted by telephone. The response rate was larger for the 2006 survey for a number of reasons. The 2003 mal survey often dd not end up n the hands of the approprate person and, therefore, was not returned. After we had more nformaton regardng the response condton of the survey, we decded to swtch to a telephone survey because that allowed the surveyors to connect wth the rght person more quckly and allowed them establsh a relatonshp n the frm so that they could call back n order to collect all the necessary nformaton. The 2006 data set dd not nclude all subsdares and branch offces that were found n the 2003 data set, whch allowed more small frms to be represented, and therefore, drawn n the 2003 sample. Small frms were more wllng to partcpate, although ths type of clarty s costly gven the challenges of dentfyng the motvatons behnd expanson and relocaton decsons. Dllman (2007) has concluded that a sgnfcant dfference n response rate can be acheved by repettve, more personal survey effort. It s possble that dfferent data collecton methods may ntroduce varatons n nterpretaton. However, snce we are not testng dfferences n frms relocaton/expanson behavor between the two samplng years, the mpact s not expected to be drectly relevant n ths study. Nevertheless, readers are cautoned on ths aspect of data collecton. The questonnare contaned four sectons. The frst secton asked questons about the general status of the frm, ncludng the frm s NAICS code (to ensure the ntended frm has been contacted), contact nformaton, sze, revenue, and other nternal nformaton. An abbrevated survey questonnare can be found n the Appendx Table A1 and the full survey can be requested from the correspondng author. The second secton elcted the self-reported ratng for a seres of factors n terms of ther mportance n the decson of relocaton/expanson. These questons were ntroduced n a neutral way such that the factors were not specfcally ted to ether past or future relocaton/expanson decsons. The wordng emphaszed how the respondents would rate the factors n ther relocaton/expanson decsons. The beneft of usng a generc decson s that one set of ratngs s suffcent for the purpose of analyzng both types of decsons. Although ths reduces the length of the survey, respondents were then not able to express ther opnons n varous stuatons. Although the tradeoff used here s generc, researchers such as Gottleb (1994) have ponted out the potental bas of ths approach. Ths caveat should be consdered when examnng the results of ths analyss. Table A1 shows the detaled factors used n the self-reported ratngs for relocaton/expanson factors. Issues such as locaton, transportaton, proxmty to the market, natural resource supply, technology support, natural envronment amentes, locaton sze capacty, labor supply potentals, local tax beneft, employees compensaton plan and recreatonal opportunty, local resdence securty, and publc servce support are ncluded. They were selected based on the lterature revew ntroduced prevously and they ncorporate elements n varous conventonal frm locaton theores as well as those mentoned n newly emerged practces. For example, some ncorporate concerns rased from the purely economc perspectve, such as proxmty to the market. Others address factors that cannot be adjusted by the frms drectly, such as natural envronment amentes and factors related to the nsttuton, such as local Southern Regonal Scence Assocaton 2010.

7 HU ET AL.: FIRM RELOCATION AND EXPANSION DECISIONS 73 tax benefts and publc servce support. Informaton on these mportant ratngs was collected n Lkert scales, where 1 represented unmportant and 4 stood for very mportant. The thrd secton contaned the decson varables. The frst queston asked frms whether they had relocated/expanded to a dfferent ste n the past fve years. The second queston asked frms to ndcate how lkely they were to relocate/expand to a dfferent ste n the next fve years. Respondents rated ther frms propensty to relocate/expand on a scale from 1 to 4 where 1 represented very unlkely and 4 stood for very lkely. Therefore, for each frm, the data contan two types of decsons: a bnary response for the past relocaton actvty and an ordered response for future relocaton decsons. Combnng the actvty of relocaton and expanson together s not wthout contenton, snce ths approach wll not allow researchers to understand each type of behavor separately. However, the cost assocated wth separatng these ntenton questons s also hgh. Frst, t wll ncrease the length of the survey. Second, f one specfc type of actvty s chosen to mantan statstcal dentfcaton, the sze of the sample may also have to ncrease to ensure that enough frms that have relocated, but not expanded, are ncluded n the sample. Nevertheless, gven ths desgn of the decson varable, cauton must be used when nterpretng the results. The last secton of the survey contans several questons pertanng to a frm s preference for a relocaton ste. Those frms that dd not ndcate any propensty to relocate or expand were not quered. In addton, snce questons n ths secton are not drectly relevant here, they are not descrbed n detal. Some representatve questons are ncluded n Table A1 for nterested readers. Table 1 gves a lst of varables that are to be used n the emprcal analyss along wth the mean or medan (dependng on whether the varable s contnuous) and standard devaton. If respondents dd not complete all questons, the mssng responses were replaced by ether the mean or medan of the rest of the sample. Although the mssng observatons can be approxmated usng varous statstcal procedures, a conservatve approach s to replace them wth the sample average, especally when the proporton of mssng data s relatvely small. For each varable gven n Table 1, the rato of mssng observatons vares and was never more than one percent of the sample. Access to hgh speed nternet (varable HSPINTNT) receved the hghest medan mportance ratng among all other factors.ths result supports the hypothess that new technologcal nfrastructures may receve more and more attenton n a frm s selecton of relocaton/expanson ste than some of the conventonal nfrastructures, such as access to natural gas ppelnes (varable NATGAS). The varables gven n Table 1 closely resemble the questons asked n the second secton of the survey, except for varables reflectng the mportance of access to ralroads and the avalablty of local colleges or unverstes. Each of these two varables s strongly correlated wth several other varables n the dataset. Other emprcal studes have encountered a smlar multcollnearty problem n the estmaton process (van Djk and Pellenbarg, 2000) and thus the two varables were removed from the lst pror to estmaton. A check of the covarance matrx (see Appendx Table A2) between the rest of the varables n Table 1 reveals that the correlatons are generally small, wth a few beng moderate (Cohen, 1988). Table 1 also presents the expected sgns of the ratng varables relatve to the relocaton/expanson decson varables. These expected sgns are derved from relevant prevous studes and \ ndcates the mpact of a partcular varable was ether unavalable or unclear from prevous lterature. Snce few exstng Southern Regonal Scence Assocaton 2010.

8 74 The Revew of Regonal Studes, Vol. 38, No 1, 2008 studes on frms future relocaton/expanson decson exst, the expected sgns n Table 1 do not make such a dstncton. TABLE 1. Varable Defnton and Descrptve Statstcs Varable Defnton Mean/Medan Std. Dev. Expected Sgn Dependent Varables Lfact* has your company relocated or expanded n the last 5 years (bnary choce) n.a. Lprop wll your company relocate or expand to an addtonal locaton n the next 5 years (ordered response) n.a. Independent Varables Sales* annual sales n mllons \ Emptotal * total employment n thousands \ Mfg* whether a manufacturng company or not \ Intstate access to nterstate PkgFret access to package freght RalFret access to ral freght PngerAr access to passenger ar PortHarb access to port harbor Supply access to supples Customer access to customers ThrPhase access to 3 phase power \ NatGas access to natural gas ppelne \ IntTrdPt access to tnl trade port \ FberOpt access to fber optc lnes \ Hvolwat avalablty of hgh volume water supply \ Hwatdsp aval of hgh volume waste water dsposal \ SldDsp aval of sold waste dsposal \ Stllte aval of satellte transmsson \ HspIntnt aval of hgh speed nternet PubTrans aval of publc transmsson \ PondStrm access to ponds and streams \ Expste possbty for future expansn at ste n add to current capacty Manag aval of manageral workforce Sklled aval of sklled workforce Techncl aval of techncal workforce Unskled aval of unsklled workforce \ LLCost favorable local labor costs WTaxRate favorable workers' compensaton taxt rate \ LocTax favorable lcoal tax rate Tranng aval of job tranng programs \ Fncng aval of long or short term fnancng \ Crme low crme rate \ Housng aval and affordablty of housng EnvQual hgh env qualty Outdoor outdoor recreaton opportuntes \ socal socal and cultural opport \ Shopng retal shoppng opport \ EdSys qualty educatonal system Hlthcare aval of qualty health care fre aval of fre protecton \ Attract ease of attractng sklled workers N = 1277 * Mean s reported. Southern Regonal Scence Assocaton 2010.

9 HU ET AL.: FIRM RELOCATION AND EXPANSION DECISIONS EMPIRICAL MODELS Snce a relocaton/expanson decson has two possble outcomes, yes or no, a bnary choce model can be appled to these decsons. Two groups of choce models are commonly seen n the lterature: the logt models and the probt models. Schmenner (1980) used a bnary choce model, whle Gumarães, Rolfe, and Woodward (1998) analyzed ste choces usng a nested logt model. Van Djk and Pellenbarg (2000) constructed ordered logt models for ther frm relocaton study. Both theoretcal and emprcal results show that the results of usng ether model are hghly consstent, and most of the dfferences between them center on emprcal mplementaton ssues (Tran, 2003; Hu, 2006b). In ths applcaton, probt models are used. Suppose varable y where y 1 ndcates that frm relocated/expanded n the past fve years; and y 0 ndcates that frm had not done so. Further assume that the decson s determned by the relatve beneft assocated wth ether acton, whch can be wrtten asu where j ndexes the opton of relocaton ( j 1 for the decson to relocate and j 0otherwse). The beneft U j cannot be observed wthout nose. If an error term j s used to represent the nose and appended tov j, the determnstc porton of Equaton (1) s: (1) U j V j j X j β j, U j that can be observed wth certanty n Vector Xj contans explanatory varables collected n the survey. Together wth the unknown coeffcents, vectorβ V j can be further decomposed as n (1). If the benefts of relocaton/expanson are larger than the benefts of not dong so, then y 1 and (2) Prob( y 1) Prob( U, j 1 U, j 0 ) If j s assumed to have an d normal dstrbuton, Equaton (2) can be wrtten as a bnary probt model: (3) Prob( y 1) X j β where s the standard normal dstrbuton functon. For the queston about the lkelhood of relocatng/expandng, a smlar analytcal procedure can be used. Thus, y 1, 2, 3 or 4 the answer of frm could range from very unlkely to very lkely. Then, the probablty of observng these dfferent values assocated wth y can be wrtten accordng to the beneft frm expects to obtan: (4) Prob( y 1) Prob( U 1) Prob( y 2) Prob( 1 U 2 ) Prob( y 3) Prob( 2 U 3 ) Prob( y 4) Prob( U 3) j Southern Regonal Scence Assocaton 2010.

10 76 The Revew of Regonal Studes, Vol. 38, No 1, 2008 where the s are unknown cut-off parameters to be estmated. To ensure that the model can be dentfed, one of the s needs to be normalzed and n ths study 1 s normalzed to zero. If the nose term s assumed to have an d normal dstrbuton, the result s an ordered probt model wrtten n the standard normal dstrbuton functon : (5) Prob( y k) ( X β) X β 5. RESULTS k k 1, 1,2,3, 4 k and The top porton of Table 2 cross-tabulates frms past and future relocaton/expanson decsons as an ntal step of the analyss. Several sgnfcant dfferences are found across categores, based on Z-tests of proportons. For example, of the 770 frms that relocated/expanded n the past fve years, 275 of them sad that they were very unlkely to relocate/expand agan n the next fve years. On the other hand, among the total of 500 frms that had not, 291 frms ndcated that they were very unlkely to relocate/expand n the next fve years. 1 Clearly, the rato of frms not wshng to relocate/expand s much hgher among those that had not relocated/expanded prevously and ths dfference s sgnfcant. On the other hand, the rato of frms very lkely to relocate/expand n the future s sgnfcantly hgher for the group that had relocated/expanded prevously than for the group that had not done so n the past. Ths fndng s consstent wth the noton of footloose frms (Kng and Wellng, 1992) n that those frms that moved n the past are more lkely move n the future. The lower porton of Table 2 provdes nformaton about the hypothess that frms n dfferent sectors may behave dfferently n terms of ther relocaton/expanson strateges. The past and future decsons are separated based on whether a frm was n a manufacturng ndustry. The manufacturng sector accounts for a sgnfcant porton of the US economy and s often a general ndcator of economc health (Stutely, 2003; Reum and Harrs, 2006). In addton, comparng condtons across all avalable sectors s not feasble. Table 2 ndcates that except for the category of don t know or no response, the ratos do not vary sgnfcantly for past or future decsons. These results partally support the argument that wthn the scope of fastgrowng and hgh-payng sectors, frms n dfferent economc segments do not exhbt dfferences n ther relocaton/expanson decsons. Table 3 gves the coeffcent of correlaton between the mportance ratng varables and the two relocaton/expanson decson varables (the past and future decsons). Ths smple correlaton analyss allows one to examne the relatonshp between relocaton/expanson decsons and each factor consdered n the survey. As Table 3 ndcates, all correlatons are farly small (Cohen, 1988). The majorty of the relatonshps are postve; n other words, when a factor s consdered mportant (receves hgher score n ratng), the frm s more lkely to have relocated/expanded n the past and n the future. The drecton of correlatons s also consstent for past and future relocaton/expanson decsons. Although t may be nformatve, ths analyss only reveals one-to-one relatonshps whle gnorng all other factors. As dscussed prevously, factors n frm relocaton/expanson decsons are very lkely to be nterdependent wth each other and to functon as a group rather than ndvdually. The modelng effort dsplayed n Tables 4 and 5 consders the nter-relatonshps between these factors. 1 Sum of the number of frms n these two groups does not equal to the full sample sze of 1,277. Ths s because seven frms dd not ndcate whether they had relocated/expanded prevously. Southern Regonal Scence Assocaton 2010.

11 HU ET AL.: FIRM RELOCATION AND EXPANSION DECISIONS 77 TABLE 2. Cross Tabulaton of Relocaton/Expanson Decsons Compare past decsons and future propenstes Past Decson Future Propensty very unlkely** unlkely* lkely** very lkely** DK/NR Total Yes No Total Compare relocaton decsons n manufacturng versus non-manufacturng ndustres Past Decson Manufacture Nonmanufacture Total Yes No Total Future Propensty Manufacture Nonmanufacture Total Very unlkely Unlkely Lkely Very lkely DK/NR** Total * and ** show the two numbers n the column or row are sgnfcantly dfferent based on the 10% and 5% sgnfcance levels respectvely. Table 4 contans the bnary probt analyss of frms past relocaton/expanson decsons. The overall model s sgnfcant based on the F-test, although many varables are not statstcally sgnfcant. Ths result s typcal n frm relocaton studes (van Djk and Pellenbarg, 2000). A VIF test shows the model s robust over multcollnearty. Sgns of the parameters are generally consstent wth the expected sgns reported n Table 1. The three varables related to ssues nternal to the frm: annual sales, total employment, and manufacturng ndustry membershp, are all nsgnfcant. In partcular, the dummy varable representng whether a frm belongs to a manufacturng ndustry s not sgnfcant, a result that s consstent wth those n Table 2. A dfferent approach that could be used to dentfy the mpact of frms belongng to dfferent sectors s a fxed effects model, where a separate constant term s created for each economc sector and tested to determne f they are sgnfcantly dfferent from zero and each other. Ths approach, however, suffers from at least two potental problems. Frst, the NAICS code uses more than one dgt to dentfy the sector, makng any determnaton of how many dgts to nclude n the fxed effect analyss arbtrary. Second, f all sub-sectors are ndvdually captured by a constant n the model, many correspondng addtonal parameters have to be estmated, whch wll greatly reduce the degree of freedom. Nevertheless, several attempts were made to dstngush the potental mpacts of sector membershps. For example, a separate model was estmated that ncorporated the fxed effects from manufacturng, mnng, and retal sectors and dd not show any sgnfcant results. Southern Regonal Scence Assocaton 2010.

12 78 The Revew of Regonal Studes, Vol. 38, No 1, 2008 Importance Varables TABLE 3. Correlaton between Importance Varables and Past and Future Relocaton/Expanson Decsons Past Decson Future Decson Importance Varables Past Decson Future Decson SALES EXPSITE EMPTOTAL MANAG MFG SKILLED INTSTATE TECHNICL PKGFREIT UNSKLED RALFREIT LLCOST PNGERAIR WTAXRATE PORTHARB LOCTAX SUPPLY TRAINING CUSTOMER FINCING THRPHASE CRIME NATGAS HOUSING INTTRDPT ENVQUAL FIBEROPT OUTDOOR HVOLWAT SOCIAL HWATDISP SHOPING SLIDDISP EDSYS STLLITE HLTHCARE HSPINTNT FIRE PUBTRANS ATTRACT PONDSTRM Postve relatonshps were found between the decson to relocate/expand n the past and the varables representng access to passenger ar (PNGERAIR) and harbor (PORTHARB), access to fber optc lnes (FIBEROPT) and hgh speed nternet (HSPINTNT), the possblty of future on-ste expanson (EXPSITE), and the avalablty of job tranng programs (TRAINING). Ths mples that frms who consder these factors mportant n ther decson-makng were more lkely to move. On the other hand, the varables representng access to ral freght (RALFREIT), supply of materal (SUPPLY), access to nternatonal trade port (INTTRDPT), avalablty of hgh volume water supply (HVOLWAT), a low crme rate (CRIME), access to outdoor recreatonal opportuntes (OUTDOOR), and the avalablty of qualty health care (HLTHCARE) have a sgnfcant negatve mpact on past decsons to relocate/expand. Ths suggests that frms who beleve these are mportant relocaton factors were not as lkely to relocate/expand as other frms. Overall, the most sgnfcant factors n the decson of a frm to relocate/expand are related to resource avalablty and technologcal support. Frms that requred fber optcs, and relatvely new transportaton and producton technologes, such as passenger ar and hgh speed nternet were more lkely to relocate/expand. Conversely, frms that requred establshed transportaton methods (such as ral freght) and support from local publc servces (such as outdoor recreatonal opportuntes and health care) were less lkely to relocate/expand. Southern Regonal Scence Assocaton 2010.

13 HU ET AL.: FIRM RELOCATION AND EXPANSION DECISIONS 79 TABLE 4. Estmaton Result of the Bnary Past Relocaton/Expanson Decson Varables Coeff. P-value Varables Coeff. P-value Constant EXPSITE SALES 5.232E MANAG EMPTOTAL SKILLED MFG TECHNICL INTSTATE UNSKLED PKGFREIT LLCOST RALFREIT WTAXRATE PNGERAIR LOCTAX PORTHARB TRAINING SUPPLY FINCING CUSTOMER CRIME THRPHASE HOUSING NATGAS ENVQUAL INTTRDPT OUTDOOR FIBEROPT SOCIAL HVOLWAT SHOPING HWATDISP EDSYS SLIDDISP HLTHCARE STLLITE FIRE HSPINTNT ATTRACT PUBTRANS LL PONDSTRM Adj. ρ Table 5 dsplays the results of the ordered probt model analyzng frms decson on how lkely they are to relocate/expand n the future. The two cut-off parameters s are both sgnfcant and have the correct sgn. The results n Table 5 reveal a general pattern that s consstent wth those n Table 4, although some dstnct dfferences are apparent. Varable LFACT s sgnfcantly postve, suggestng a postve lnk between frms past and future decsons, whch s consstent wth the results n Table 2 and n support of the hypothess regardng footloose frms. Smlarly, the three varables related to nternal factors are not sgnfcant. Other varables that are postvely sgnfcant are INTSTATE, PNGERAIR, FIBEROPT, EXPSITE, SKILLED, LLCOST, and LOCTAX, whch ndcates that these frms value access to nterstate hghways, arports, and fber optc lnes; the possblty of future on-ste expanson; and the avalablty of a sklled workforce, favorable local labor cost, and tax rate. The key dfference between factors assocated postvely wth a frm s past decson to relocate/expand and those that affect the decson n the future s that sklled labor, local tax rates, and cost benefts were gven much stronger weghts n future decsons. Ths fndng s supported by earler studes n whch local fnancal ncentves were found to be effectve n convncng frms to consder relocaton (e.g., Papke, 1987). Only the varables PORTHARB and CRIME have a sgnfcant negatve relatonshp wth the decson to relocate/expand n the Southern Regonal Scence Assocaton 2010.

14 80 The Revew of Regonal Studes, Vol. 38, No 1, 2008 future. The effect of the varable CRIME s consstent wth that descrbng the actual behavor: frms that beleved a low local crme rate was an mportant factor were less lkely to relocate/expand n the past. The fndng suggested by Table 5 s that the factors mportant n future relocaton/expanson decsons may not be the same as those that were mportant n past decsons. The dfferences n the self-reported factors for past and future relocaton/expanson decsons have some nterestng mplcatons. For example, as Schmenner (1980, 1982) ponted out, suffcent and cheap labor supply and proxmty to markets and consumers were two types of crucal factors n frms relocaton decsons n the last century. However, as ndcated by varables INSTATE (nterstate hghway), SKILLED (sklled labor supply), and LLCOST (low labor cost) n Table 4, none of these factors were sgnfcant n frms relocaton/expanson occurrng durng the turn of the century (tme of survey mnus 1 to 5 years). Rather, new TABLE 5. Estmaton Result of the Ordered Future Relocaton/Expanson Propenstes Varables Coeff. P-value Varables Coeff. P-value Constant MANAG Lfact SKILLED SALES 4.226E TECHNICL EMPTOTAL UNSKLED MFG LLCOST INTSTATE WTAXRATE PKGFREIT LOCTAX RALFREIT TRAINING PNGERAIR FINCING PORTHARB CRIME SUPPLY HOUSING CUSTOMER ENVQUAL THRPHASE OUTDOOR NATGAS SOCIAL INTTRDPT SHOPING FIBEROPT EDSYS HVOLWAT HLTHCARE HWATDISP FIRE SLIDDISP ATTRACT STLLITE λ HSPINTNT λ PUBTRANS LL PONDSTRM Adj. ρ EXPSITE Southern Regonal Scence Assocaton 2010.

15 HU ET AL.: FIRM RELOCATION AND EXPANSION DECISIONS 81 technologcal nfrastructure, such as the avalablty of hgh speed nternet, was hghly sgnfcant. In comparson, Table 5 suggests that hgh speed nternet would no longer be an mportant factor n frms relocaton/expanson decsons, despte the fact that ths factor was regarded as an mportant aspect to consder n Table 1. Ths may ndcate that those frms who thought the avalablty of hgh speed nternet access was mportant were more lkely to relocate/expand n the past. However, when consderng smlar decson n the future, frms would already have hgh speed nternet or hgh speed nternet s lkely to be avalable already at most locatons. Thus, whether hgh speed nternet s avalable may be mportant n determnng where to relocate/expand, but not whether to do so. Hgh speed nternet has lkely become recognzed as a fundamental necessty for any busness. In Table 5, the tradtonal nfrastructure varables suggested by Schmenner have once agan become sgnfcant (e.g., varables INSTATE, SKILLED, and LLCOST). These results support the argument that n ths age, where new technologes emerge faster than ever before, researchers should revst frms relocaton/expanson decsons constantly n order to obtan a clear and current assessment. 6. CONCLUSION AND IMPLICATIONS Frms decsons to relocate/expand have mportant mplcatons for factor, labor, and fnancal markets. In addton, these decsons tend to nteract wth local, regonal, and federal governments spatal polces and ultmately adjust the dstrbuton of wealth. Usng data collected from exstng US frms, ths study examnes frms relocaton/expanson decsons n order to determne what factors nfluence these decsons both n the frms past management hstory and n ther future development. The lterature revew suggests that ths study contans several unque features. Frst, rather than focusng on locaton-specfc characterstcs, ths study collected frm leaders subjectve vew on varous features of a potental new locaton. Ths elmnates the problems assocated wth the use of an endogenous choce set. Second, the self-reported ratng framework allows leaders to evaluate a lst of factors that may be relevant to ther relocaton/expanson decsons n a short perod of tme. Therefore, a larger number of factors that ncorporate a frm s own nternal features and characterstcs of the new locaton, together wth a seres of nsttutonal factors that are not greatly affected by the frms commercal actvtes are consdered. Fnally, ths study examnes both preferences based on past actons and preferences for the future, whch s rare n the lterature. Ths allows a drect comparson between the factors that affect these two types of decsons. The results show that factors mportant to past and future relocaton/expanson decsons are generally consstent. Frms nternal features such as sales, employment and whether a frm belongs to a manufacturng ndustry are not vtal n ther decson makng. Rather, the avalablty of materals, transportaton optons, and hgh-tech support are found to be key factors. The results of ths study also support the footloose hypothess that frms whch relocated/expanded n the past are more lkely to do so n the future. Some dstngushable dfferences exst between the factors that explan past and future decsons. Local supply of sklled labor, local tax structures, and lower relatve labor costs are found to be sgnfcant n frms future relocaton /expanson decsons but are not sgnfcant n ther actual past behavor. Southern Regonal Scence Assocaton 2010.

16 82 The Revew of Regonal Studes, Vol. 38, No 1, 2008 These results offer mportant mplcatons on the polcy front as well. A government should be aware of what factors may have contrbuted to frms relocaton/expanson n the past and consder polces that wll mprove or elmnate the defcences. At the same tme, factors mportant to frms future decsons also need to be examned so local governments can maxmze the outcome of the effort to avod frm outflow and to attract new frms. Gven these dfferences, studes examnng reasons why these dfferences have occurred could be of nterest as well. Whle sgnfcant nsghts nto frms relocaton/expanson behavor are provded here, opportuntes for future research exst. In ths analyss, frms that have relocated/expanded n the past, provded nformaton on whether they thought some factors were mportant n ther decson makng (e.g., access to ral freght). One can examne the characterstcs of the actual ste where they have relocated/expanded to see whether the factors were ndeed avalable (e.g., access to ral freght). More mportantly, snce all frms n the sample were asked about ther future relocaton/expanson propenstes, a natural extenson of the current analyss s to conduct follow-up surveys and examne whether these frms dd as they sad they would. Ths type of extenson wll requre a major research effort whch s beyond the scope of the current study. Once completed, t would generate a dataset capable of supportng a macro analyss of frms relocaton/expanson trend based on aggregated factors n addton to the current mcro-based study. An added beneft of ths contnung research effort, as Pellenbarg et al. (2002) ponted out, s related to the advantage of usng longtudnal data to mprove predcton. The augmented dataset would help refne the survey questonnare, correct bas, and establsh foundatons for further studes. Secondly, as t has been mentoned prevously, one may further deconstruct the dependent (and ndependent) varable currently used n ths study nto several more detaled questons. Although ths attempt may ncrease the data collectng effort sgnfcantly, the detaled nformaton obtaned from these questons would be nvaluable. A researcher wll need to exert careful thoughts on the tradeoffs nvolved n ths extenson. REFERENCES Brouwer, Aled E, Ilara Marott, and Jos N. Van Ommeren. (2004) The Frm Relocaton Decson: An Emprcal Investgaton, Annals of Regonal Scence, 38, Cohen, Jacob. (1988) Statstcal Power Analyss for the Behavoral Scences, 2 nd edton. Lawrence Erlbaum Assocates: Hllsdale, New Jersey. De Bok, Mchel and Frank Sanders. (2005) Frm Relocaton and Accessblty of Locatons: Emprcal Results from the Netherlands, n Monograph, Transportaton and Land Development. Transportaton Research Board: Washngton, DC. Dllman, Don A. (2007) Mal and Internet Surveys: The Talored Desgn, Second Edton-2007 Update. John Wley Publsher: New York. Fernandez, Roberto M. (2008) Race, Spatal Msmatch, and Job Accessblty: Evdence from a Plant Relocaton, Socal Scence Research, 37, Fsher, Peter S. and Alan H. Peters. (1998) Industral Incentves: Competton among Amercan States and Ctes. W. E. Upjohn Insttute: Kalamazoo, Mchgan. Southern Regonal Scence Assocaton 2010.

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18 84 The Revew of Regonal Studes, Vol. 38, No 1, 2008 Stutely, Rchard. (2003) Gude to Economc Indcators: Makng Sense of Economcs. Bloomberg Press: Prnceton, NJ. Tran, Kenneth. (2003) Dscrete Choce Methods wth Smulaton. Cambrdge Unversty Express: Cambrdge, MA. Van Djk, Jouke and Pet H. Pellenbarg. (2000) Frm Relocaton Decsons n the Netherlands: An Ordered Logt Approach, Papers n Regonal Scence, 79, Wohlgemuth, Darn and Maureen Klkenny. (1998) Frm Relocaton Threats and Copy Cat Costs, Internatonal Regonal Scence Revew, 21, Southern Regonal Scence Assocaton 2010.