Working Paper: NBER ID: w16141
Authors: 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.
Keywords: relocated firms; incumbent survival; local firm concentration; quasi-natural experiment
JEL Codes: J21; L10; R11
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Relocation of firms (R30) | Increased likelihood of incumbent failure (D79) |
| Increased likelihood of incumbent failure (D79) | Incumbent survival (C41) |
| Relocation of firms (R30) | Competitive pressures on incumbents (L13) |
| Competitive pressures on incumbents (L13) | Incumbent failure (J63) |
| Relocation of firms (R30) | Increased competition for local inputs (F69) |
| Increased competition for local inputs (F69) | Negative impact on incumbents (F69) |
| Relocation of firms (R30) | Incumbent performance (L25) |