Location Choice of New Business Establishments: Understanding the Local Context and Neighborhood Conditions in the United States

Abstract

With the continuing shift toward e-commerce, physical business locations with a brick-and-mortar presence become an endangered element of urban fabric, land use, and the local economy. City governments and local municipalities have created and implemented a variety of strategies and incentives to stimulate new business activity within their jurisdictions. A policy of enhancing the business climate is productive in some regions but not in others. To understand these variations in outcomes, this research focuses on examining the relationship between the uniqueness of certain regions, spatially bounded characteristics, and how both affect where new establishments locate. A two-level model is introduced to employ the census tract as a spatial unit of analysis and analyzes new establishments within 27 medium-sized metropolitan statistical areas in the United States. That quantitative model allows this study to determine key regional and neighborhood factors, as well as the existence of previously unmeasured factors, influencing location decisions of new establishments. The results of this study confirm the importance of economic, demographic, and geographic conditions at the neighborhood level, providing a better understanding of the vulnerability of the local economy.