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The Decline of Small Cities: Increased Competition from External Shopping Malls or Long-Term Negative Trends?

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  • Sven-Olov Daunfeldt
  • Oana Mihaescu
  • Niklas Rudholm

Abstract

We use the entry of 17 external shopping malls in Sweden to investigate how they have affected the performance of incumbent firms located in the city centres of small cities. Estimating a traditional fixed effects regression model while controlling for firm-specific heterogeneity, we find that entry by external shopping malls decreased the labour productivity of incumbent firms in city centres by 5.31%. Revenues decrease by 6.62%, while the reduction in the number of employees (0.45%) is small and not significantly different from zero. However, using time-specific fixed effects to control for common time trends in retailing in small cities, we find that the impact on labour productivity, revenues and the number of employees due to the entry of external shopping malls becomes insignificant. Thus, incumbent firms in small cities have a negative development path mainly due to long-term economic trends, possibly because of the combination of urbanization effects and a lack of local investments.

Suggested Citation

  • Sven-Olov Daunfeldt & Oana Mihaescu & Niklas Rudholm, 2022. "The Decline of Small Cities: Increased Competition from External Shopping Malls or Long-Term Negative Trends?," International Regional Science Review, , vol. 45(2), pages 225-257, March.
    • Handle: RePEc:sae:inrsre:v:45:y:2022:i:2:p:225-257
    DOI: 10.1177/01600176211034133
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    More about this item

    Keywords

    external shopping malls; city centre; firm performance; labour productivity; agglomeration economies; competition; difference-in-differences;
    All these keywords.

    JEL classification:

    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance
    • P25 - Political Economy and Comparative Economic Systems - - Socialist and Transition Economies - - - Urban, Rural, and Regional Economics
    • R12 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Size and Spatial Distributions of Regional Economic Activity; Interregional Trade (economic geography)

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