Modeling industrial location decisions in U.S. counties



1 Introduction

The location of economic activity represents a logical and testable case of
firm behavior. Not surprisingly, the subject continues to spawn an enor-
mous literature, covering both theoretical and empirical research. While
many studies examine intraurban and international location decisions, most
research focuses on firm location decisions among regions.
1

Indeed, from the standpoint of optimal choice theory, location is the
oldest branch of regional science. Alfred Weber and August Losch developed
well-known interregional models of profit-maximizing location emphasizing
transport costs in the early 1900s, while Edgar Hoover, Walter Isard and
Melvin Greenhut, among others, refined the theory at mid-century. Over
the years location choice theory has incorporated agglomeration (spatial
externalities) along with demand conditions and factor costs. More recently,
the “new economic geography” that emerged during the early 1990s revived
old questions about location dynamics and the influence of firm site selection
decisions on economic growth and development. Agglomeration economies
and other spatial forces were recast in formal models advanced by some
of contemporary economics’ most prominent theorists and prolific writers
[Krugman (1991
a, 1991b), Porter (1994), Arthur (1994), Venables (1996),
Hanson (1996), Krugman (1998); for a critique see Martin (1999)].

At the same time, empirical studies seeking to identifying the factors that
underlie location decisions (markets, agglomeration economies, factor costs)
continue to proliferate. Spurring more sophisticated empirical work on lo-
cation, econometric advances have complemented the increasing availability



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