Patterns of Regional Firm Mobility in Germany: Urbanization, Suburbanization, or Counterurbanization?

Abstract

Firms are not necessarily geographically static, in fact, they sometimes move across space within an economy. We define three possible destination types for relocating firms: major cities (urbanization), urbanized districts (suburbanization), and rural districts (counterurbanization). In this paper, we document relocation activity into all types of spatial structures, however, suburbanization is the predominant pattern in Germany. The literature on relocations of firms mostly ignores that relocating firms and their motives to relocate could be vastly different depending on their destination region. In our empirical analyses, we therefore examine heterogeneities by spatial structure in terms of firm selection and regional attraction factors. Our results reveal that firms moving to major cities and those moving to urbanized or rural districts are vastly different from each other in terms of firm size, wage level, and knowledge intensity. Our regional-level analysis reveal that especially relocating firms to urbanized districts are attracted by lower business taxes in these regions, suggesting that the suburbanization patterns are largely driven by regional differences in the local business tax rates. In contrast, there is no evidence that lower population densities, industry concentration, or regional wage levels matter for any of the moving types.