Digital gravity? Firm birth and relocation patterns of young digital firms in Germany

Abstract

This paper analyses the spatial patterns of young (<10 years) digital firms in Germany between 2008 and 2017 on county level. Determinants of firm birth locations as well as relocations are considered jointly to understand differences in location choices within firms' life cycles. I match commercial register data of 107,321 firms with countylevel administrative data to capture local characteristics. Using an OLS model with fixed effects, I find that the local knowledge base-that is, universities, research institutes, and colocated incumbents-are significant key determinants of digital firm birth when controlling for a host of local characteristics. My results indicate that for five firms per 1000 inhabitants, there is around one firm birth.Second, using a fixed effects gravity model for the analysis of relocations, I find that the most dominant explanatory factor for firm relocation across specifications is distance, that is, relocation costs. Relocation flows are more than twice as high to neighboring counties relative to other locations which shows that digital firms are not as footloose as their business model may suggest. Jointly, my results reflect economic activity's regional persistence, particularly for new firms. My paper provides evidence for policies targeting homogenous digital clusters based on strong colocation and that digital economic activity is not

Government response on russian war in Ukraine: Relocating business

“…Wasileski et al (2011) compared business closure and relocation following natural disasters (earthquakes and hurricanes). Hellwig (2023) focused on the relocation patterns of young digital firms in Germany. Györffi and Oren (2006) underline the role of policy and market forces in shaping relocation decisions.…”