What makes German manufacturing plants move locations?

Abstract

In this paper, the relocation decisions of manufacturing plants across the NUTS-3 regions of the German economy are investigated. A relocation decision concerns whether a plant (an incumbent) moves its location from one region to another over a given time period or whether it remains in the same region. This decision is distinct from a location decision (of a start-up). To analyze the relocations of plants, the rich information of the official German regional statistics as well as the official German firm statistics that are maintained by the German Federal Statistical Office and the Statistical Offices of the Federal States is exploited for the first time. Both pull and push factors that influence relocation decisions are investigated. The results reveal that, in particular, regional road infrastructure and accessibility of regions as well as the quality of the available labor force positively affect the decision to relocate a plant in the German economy. A reduction of 10% in travel time by road to reach the three nearest agglomeration centers leads to an increase in relocation probability of about 9.5% on average. Policy implications involve the need for improvement of accessibility and infrastructure as well as incentives to support human capital in order to attract businesses to move to a region.