How local geography shapes firm geography

ABSTRACT This paper investigates how the characteristics of the local system in which a firm is situated affect its geography – that is, the location of its business units. Using econometric techniques on a novel dataset of Italian business groups, we find that the geographic dispersion of multi-unit firms is influenced by a number of local factors, such as industry variety, production specialization, spatial density and infrastructure accessibility. In contrast, the geography of manufacturing groups seems to be affected only by production specialization. This paper contributes to the economic geography and entrepreneurship literature by showing that local factors affect the behaviour and organization of firms – in our case, the geographic dispersion of business units. We find that the geographic dispersion of firms decreases when the headquarters are situated in a local system that has a high level of industry variety and spatial density. At the same time, we observe geographic dispersion to be positively related to infrastructure accessibility.