Firm local embeddedness in an insular region: The Åland Islands compared to Finland

Abstract

The present study analyzes the difference between the Åland Islands — an insular and peripheral part of Finland — and Finland as a whole in terms of firm local embeddedness. The analysis utilizes matched employee-employer longitudinal data for all businesses in Finland, including the Åland Islands, from 2006 to 2014. Local embeddedness is modelled both as tenure (the number of years a key stakeholder in a firm has lived in the same municipality as the firm) and by calculating the geographical distance the key stakeholder lives from the focal firm. Contrary to our expectations, we find that for our tenure measure of local embeddedness, firms are actually less locally embedded in the peripheral region than in the larger country. However, our distance measure of local embeddedness performs as expected with firms in the peripheral region. We hypothesize that that there may be an optimal level of local embeddedness, above which a local firm does not necessarily gain by further increasing its local embeddedness.