Centre for Vocational Education Research LSE RSS Email Facebook Twitter


SERC/Urban and Spatial Programme Discussion Paper
From Russia with Love: The Impact of Relocated Firms on Incumbent Survival
Oliver Falck, Christina Guenther, Stephan Heblich and William R. Kerr August 2011
Paper No' SERCDP0088:
Full Paper (pdf)

JEL Classification: R10; L10; H25; O10; J20

Tags: agglomeration; competition; firm dynamics; labor; germany

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.