Shaping the local business structure: drivers of firm location at the municipal level

Abstract

Because local economic development is linked to the ability to attract business, policymakers have begun to endow territories with suitable factor conditions for the enticement of new enterprises, as in the case of EU Structural Funds. We investigate this phenomenon to provide valuable policy suggestions with a dynamic factor model and a panel regression analysis with spatial effects on a database with many cross-sections (1531 municipalities) and variables (55 indicators). Results show that structural variables like technological endowment, infrastructural provision, productive structure, local taxation, human capital and innovation represent the most important drivers to stimulate business location, even at the municipal level, offering relevant cues for policymakers.