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Firm Location Choice in Cities: Evidence from China, India, and Brazil

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  • Sridhar, Kala Seetharam
  • Wan, Guanghua

Abstract

We use large survey data sets of firms provided by the World Bank for China, India, and Brazil?Investment Climate Surveys?to address the important question: what determines the locational choice of firms among cities in these countries. We find that capital cities in all countries are attractive for firms to locate. In India and China, labour-intensive firms tend not to locate in mid-sized or large cities, when compared with smaller ones, perhaps due to higher wage, training and attrition costs. Labour regulations both in India and China deter firms from locating in the larger cities, but not in Brazil. Exporter firms prefer to locate in large cities in these two countries, but not so in the largest cities of Brazil. Finally, while the size of a firm has no impact on its location decision in China, large firms in India prefer to locate in the largest cities, but not in mid-sized cities. Proximity to inputs within the city has a positive impact on firm location. The post-reform firms in China tend to locate in the large cities whereas in the case of India, post-1991 firms refrain from locating in the mid-sized or large cities. These findings have important policy implications for urban governance in these countries, which are summarized in the paper.

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File URL: http://www.wider.unu.edu/stc/repec/pdfs/rp2007/rp2007-56.pdf
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Bibliographic Info

Paper provided by World Institute for Development Economic Research (UNU-WIDER) in its series Working Paper Series with number UNU-WIDER Research Paper RP2007/56.

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Length: 20 pages
Date of creation: 2007
Date of revision:
Handle: RePEc:unu:wpaper:rp2007-56

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Keywords: India; China; Brazil; location choice; industry location; firm location;

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References

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  1. Besley, Timothy J. & Burgess, Robin, 2002. "Can Labour Regulation Hinder Economic Performance? Evidence from India," CEPR Discussion Papers 3260, C.E.P.R. Discussion Papers.
  2. Henderson, J. Vernon & Shalizi, Zmarak & Venables, Anthony J., 2000. "Geography and development," Policy Research Working Paper Series 2456, The World Bank.
  3. Lall, Somik V. & Mengistae, Taye, 2005. "The impact of business environment and economic geography on plant-level productivity : an analysis of Indian industry," Policy Research Working Paper Series 3664, The World Bank.
  4. Krishna B. Kumar & Raghuram G. Rajan & Luigi Zingales, 1999. "What Determines Firm Size?," NBER Working Papers 7208, National Bureau of Economic Research, Inc.
  5. Sridhar, Kala Seetharam, 2009. "Costs and Challenges of Local Urban Services: Evidence from India's Cities," OUP Catalogue, Oxford University Press, number 9780198060840, September.
  6. Daniel da Mata & Uwe Deichmann & J. Vernon Henderson & Somik V. Lall & Hyoung G. Wang, 2005. "Determinants of City Growth in Brazil," Discussion Papers 1112, Instituto de Pesquisa Econômica Aplicada - IPEA.
  7. Dollar, David & Hallward-Driemeier, Mary & Mengistae, Taye, 2005. "Investment Climate and Firm Performance in Developing Economies," Economic Development and Cultural Change, University of Chicago Press, vol. 54(1), pages 1-31, October.
  8. Head, Keith & Ries, John, 1996. "Inter-City Competition for Foreign Investment: Static and Dynamic Effects of China's Incentive Areas," Journal of Urban Economics, Elsevier, vol. 40(1), pages 38-60, July.
  9. Sridhar, Kala Seetharam, 2007. "Density gradients and their determinants: Evidence from India," Regional Science and Urban Economics, Elsevier, vol. 37(3), pages 314-344, May.
  10. Gerald Marschke & Jinyoung Kim & Sangjoon John Lee, 2004. "Research Scientist Productivity and Firm Size: Evidence from Panel Data on Investors," Discussion Papers 04-06, University at Albany, SUNY, Department of Economics.
  11. Timothy J. Bartik, 1991. "Who Benefits from State and Local Economic Development Policies?," Books from Upjohn Press, W.E. Upjohn Institute for Employment Research, number wbsle, December.
  12. Lall, Somik V. & Jun Koo & Chakravorty, Sanjoy, 2003. "Diversity matters - the economic geography of industry location in India," Policy Research Working Paper Series 3072, The World Bank.
  13. Anderson, Gordon & Ge, Ying, 2005. "The size distribution of Chinese cities," Regional Science and Urban Economics, Elsevier, vol. 35(6), pages 756-776, November.
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Cited by:
  1. Robb, David J. & Liu, Fei & Lai, Richard & Ren, Z. Justin, 2012. "Inventory in mainland China: Historical, industry, and geographic perspectives," International Journal of Production Economics, Elsevier, vol. 135(1), pages 440-450.
  2. Li, Lixing, 2011. "The incentive role of creating "cities" in China," China Economic Review, Elsevier, vol. 22(1), pages 172-181, March.
  3. Tripathi, Sabyasachi, 2012. "Estimating Urban Agglomeration Economies for India: A New Economic Geography Perspective," MPRA Paper 43501, University Library of Munich, Germany.
  4. Fan, Shenggen & Li, Lixing & Zhang, Xiaobo, 2012. "Challenges of creating cities in China: Lessons from a short-lived county-to-city upgrading policy," Journal of Comparative Economics, Elsevier, vol. 40(3), pages 476-491.

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