Institutions versus location of new firms: does distance matter? Evidence from the Polish economy

Abstract

The research aim was to identify the effects of the institutional environment-supporting business activity on new firms' location. Using a series of negative binomial models, coupled with Hausman-Taylor estimations and Granger causality tests we studied the role of quality of institutions and distances to various types of institutions on the spatial distribution of new firms. The analysis also takes into consideration other location criteria, arising from the geographical location and socio-economic conditions in Poland's smallest administrative division unit, i.e., a municipality. The results revealed a positive role in the quality of institutions as firms' location criteria. Furthermore, the distance of firms to different institutions tended to be significant, albeit depending on these institutions' type. In this regard, the distance of numerous local institutions performing a broader spectrum of activities was a significant location criterion, while the distance to institutions focusing on a narrow range of activities (e.g., supporting innovations, R&D), dedicated to selected or supra-regional groups of clients, more frequently proved to be insignificant. Implications arising from the research can help local authorities, which take measures to improve the institutional environment supporting firms.