Emission taxes, firm relocation, and product differentiation

This paper studies the effect of an emission tax on the relocation decision in a duopoly with vertical product differentiation. We establish the relationship between an exogenous product quality markup, relocation cost, and emission taxation in a two-country-setting for three cases: (a) an environmental tax set only by one country, (b) non-cooperative environmental taxation in both countries, and (c) coordinated environmental taxation. We show that a larger product quality markup and, thus, weaker competition can serve as a substitute for environmental policy as both reduce emissions. However, weaker competition makes firm relocation more likely, which results in emission shifting instead of emission reduction. The higher the product quality markup, the more likely it is that at least one firm relocates to the foreign country. Emission taxation in the foreign country changes location decisions: If also the foreign country applies an emission tax, at least one firm stays in the home country. If both governments set taxes non-cooperatively, the low-quality firm always stays in the home country. If both countries set taxes cooperatively, both firms are more likely to stay in the home country. However, relocation of the low-quality firm is a possible outcome under cooperative taxation.

Where and why do firms choose to move? Empirical evidence from Norway

A key goal for many public policies is to increase the competitiveness of local industries and make areas more attractive for firm location and development. However, little is known about firm relocations even though they are of crucial importance in understanding economic development within a region and the effectiveness of the policies proposed. This paper contributes to filling this gap by looking further into the firm relocation process by estimating models for the decision to relocate and to where. The studied area consists of four counties on the western coast of Norway that generate about half of Norway’s traditional exports. Changes in firm relocations for approximately 16,500 firms within this study area are analyzed. In addition, interviews with firms that relocated are also carried out to support the findings from the model. The results indicate that the decision to relocate is influenced by a firm’s internal and external characteristics such as agglomeration. The results are relevant for regional planning and development as firms seem to have different preferences regarding what makes a location attractive or not. The results might serve as input in land-use interaction models, where changes in firm location patterns from transport investments are estimated.

FIRM LOCATION AND INNOVATION: EVIDENCE FROM CHINESE LISTED FIRMS

Matching city-level and province-level GDP data with firm headquarters’ locations for a sample of Chinese listed firms from 2003 to 2015, we find that firm locations are positively and significantly associated with firm innovation. In addition, firms with higher government grants have higher R&D inputs. The gap between firms’ innovation performance in ordinary cities and in non-ordinary cities is not significant in the eastern region; however, the gap is significant in the central and western regions of China. Finally, we use firm relocation to tackle the endogeneity issue and find that firms relocated to cities with larger size of economy are associated with higher innovation performance.