What makes firms leave the neighbourhood?

Limited attention has been paid to how neighbourhood conditions affect firm relocation choices. Using a panel dataset (1999-2006) of actual firm relocations in the Netherlands, the effect of different neighbourhood conditions on the firm’s propensity to relocate has been estimated. Results show that besides firm and regional characteristics neighbourhood conditions also affect firms’ relocation choices, but which conditions matter depends on the firm’s industrial activity and size.

Especially the relocation decision of consumer services is affected by neighbourhood conditions, while the choice of manufacturing, wholesale and business services firms is affected more by increases in population density. Nevertheless, the number of shops, cafes and restaurants present in the neighbourhood affects the relocation decisions of all three types of firms, especially of those with more than one employee. This shows that besides distressing conditions, such as violent crime, differences in amenities within cities also affect the sorting of firms.

PBL working paper 6