From Russia with Love: The Impact of Relocated Firms on Incumbent Survival

Citation

Falck O, Guenther C, Heblich S & Kerr WR (2011) From Russia with Love: The Impact of Relocated Firms on Incumbent Survival. Stirling Economics Discussion Paper, 2011-17.

Abstract
We identify the impact of local firm concentration on incumbent performance with a quasi natural experiment. When Germany was divided after World War II, many firms in the machine tool industry fled the Soviet occupied zone to prevent expropriation. We show that the regional location decisions of these firms upon moving to western Germany were driven by non-economic factors and heuristics rather than existing industrial conditions. Relocating firms increased the likelihood of incumbent failure in destination regions, a pattern that differs sharply from new entrants. We further provide evidence that these effects are due to increased competition for local resources.

Keywords
Agglomeration; competition; firm dynamics; labor; Germany; Business relocation Germany (East); Economic geography; Machine tool industry Germany (East) History; Machine tool industry Germany (West) History

JEL codes

• R10: General Regional Economics (includes Regional Data)
• L10: Market Structure, Firm Strategy, and Market Performance: General
• H25: Business Taxes and Subsidies including sales and value-added (VAT)
• O10: Economic Development: General
• J20: Demand and Supply of Labor: General

• SEDP-2011-17-Falck-Guenther-Heblich-Kerr.pdf