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From Russia with Love: The Impact of Relocated Firms on Incumbent Survival

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  • Oliver Falck
  • Christina Guenther
  • Stephan Heblich
  • William R. Kerr

Abstract

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.

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  • Oliver Falck & Christina Guenther & Stephan Heblich & William R. Kerr, 2011. "From Russia with Love: The Impact of Relocated Firms on Incumbent Survival," SERC Discussion Papers 0088, Centre for Economic Performance, LSE.
    • Handle: RePEc:cep:sercdp:0088
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    2. Einiö, Elias, 2016. "The loss of production work: evidence from quasiexperimental identification of labour demand functions," LSE Research Online Documents on Economics 69019, London School of Economics and Political Science, LSE Library.
    3. Thomas Brenner & Matthias Duschl, 2015. "Causal dynamic effects in regional systems of technological activities: a SVAR approach," The Annals of Regional Science, Springer;Western Regional Science Association, vol. 55(1), pages 103-130, October.
    4. Stephan Heblich & Marlon Seror & Hao Xu & Yanos Zylberberg, 2019. "Industrial clusters in the long run: evidence from Million-Rouble plants in China," CESifo Working Paper Series 7682, CESifo.
    5. Sorgner, Alina & Wyrwich, Michael, 2022. "Calling Baumol: What telephones can tell us about the allocation of entrepreneurial talent in the face of radical institutional changes," Journal of Business Venturing, Elsevier, vol. 37(5).
    6. Aaron Chatterji & Edward Glaeser & William Kerr, 2014. "Clusters of Entrepreneurship and Innovation," Innovation Policy and the Economy, University of Chicago Press, vol. 14(1), pages 129-166.
    7. Hanlon, W.Walker & Heblich, Stephan, 2022. "History and urban economics," Regional Science and Urban Economics, Elsevier, vol. 94(C).
    8. Alex Coad & Christina Guenther, 2014. "Processes of firm growth and diversification: theory and evidence," Small Business Economics, Springer, vol. 43(4), pages 857-871, December.
    9. Ludger Wößmann, 2011. "The importance of education for economic development: A new agenda of economic-historical research using Prussian district data, part 2," ifo Schnelldienst, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 64(01), pages 41-47, January.
    10. Elias Einiö, 2016. "The loss of production work: evidence from quasi-experimental identification of labour demand functions," CEP Discussion Papers dp1451, Centre for Economic Performance, LSE.
    11. Michael Fritsch & Maria Kristalova & Michael Wyrwich, 2020. "Regional trajectories of entrepreneurship: the effect of socialism and transition," Jena Economics Research Papers 2020-010, Friedrich-Schiller-University Jena.
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    More about this item

    Keywords

    Agglomeration; competition; firm dynamics; labor; Germany;
    All these keywords.

    JEL classification:

    • R10 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - General
    • L10 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - General
    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • O10 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - General
    • J20 - Labor and Demographic Economics - - Demand and Supply of Labor - - - General

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