Analysis of the Role of Commercial Real Estate in the Economic Development of the Northeastern United States

Abstract

Research on the relationship between real estate investment and economic growth has a long history in the economic development literature. This study adds to the literature by focusing on the largest segment of commercial real estate, retail establishments. Not only quantifying the economic impacts of retail establishments, but also understanding how the economic and socio-demographic characteristics of an area affect investment location decisions, contributes to the understanding of regional growth process. A 3SLS simultaneous equations model derived from is used to analyze the role of “small” and “large” retail establishments in the economic development of the Northeast region of the United States. The study concludes that growth in retail establishments indeed plays a significant role in the economic growth process in the study region. Counties’ government expenditure and housing values play a strong role in attracting retail businesses. Population density has different effects on “small” and “large” retail establishments; high population density areas are found to be attractive, particularly to “small” retail establishments, whereas “large establishments” prefer areas with low population densities.