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Working Paper No. 332: Are New Shopping Centers Drivers of Development in Large Metropolitan Suburbs? The Interplay of Agglomeration and Competition Forces

PublicationWorking paper
agglomeration effects, attenuation of effects, competition, Firm performance, Martin Korpi, Oana Mihaescu, Özge Öner, retail location, Shopping centers

Abstract

We investigate to which extent shopping centers drive local economic development by studying how distance to newly established shopping centers affects the performance of incumbent firms, located in the suburbs of the three Swedish major metropolitan areas Stockholm, Gothenburg, and Malmö, 2000-2016. We use a regression setup with around 27,000 firm-year observations and explore the possible heterogeneity imposed on the results from two main elements of spatial economics theory: the size of the new retail area and the distance from the new retail area to the analyzed incumbents. We observe a clear difference in the direction of the effects of large versus small shopping centers. While competition forces are much stronger in the case of the establishment of large shopping centers, yielding a negative 5% on incumbent firm revenue and negative 3% on firm employment, results indicate the opposite pattern for smaller shopping centers; with firm revenue and firm employment increasing 4% and 3%, respectively. Moreover, we also observe that both agglomeration and competition effects attenuate sharply with distance from the new entrant, confirming one of the central premises of retail location theory. Finally, we observe that the geographical scope of the effects is much wider in the case of larger shopping centers, with estimates becoming statistically insignificant at about 9-10 km from the new entry, as compared to 3-4 km in the case of smaller retail centers.

Mihaescu, O., Korpi, M. & Öner, Ö. (2020). Are New Shopping Centers Drivers of Development in Large Metropolitan Suburbs? The Interplay of Agglomeration and Competition Forces. Ratio Working Paper Nr 332. Stockholm: Ratio.

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