From Rust Belt to Sun Belt - Why and Where Do American Corporate HQs Move?

American firms are remarkably dynamic compared to those in other developed nations in many respects - including the increasing tendency of even the largest to relocate headquarters. Using a unique firm-level database consisting of nearly 30,000 American headquarters, Vanessa Strauss-Kahn, Assistant Professor of Economics and Xavier Vives, the Portuguese Council Chaired Professor of European Studies, have studied the firm- and location-specific characteristics of American headquarter relocations between 1996 and 2001. Their findings indicate a reversal of the general dispersal trends of the 70s and 80s.

by Vanessa Strauss-Kahn, Xavier Vives
Last Updated: 23 Jul 2013

The departures of corporate headquarters tend to worry municipal and regional governments. There is ample evidence that urban areas with more HQs in absolute terms -- as well as more diversified headquarters - have higher per capita incomes. Conversely, there are often negative externalities regarding both direct and indirect job numbers - and often a drop off in market thickness - when major corporations choose to relocate their operational centres. The relocation of Boeing's non-manufacturing operations and the wholesale movement of the Bank of America's main offices are just two recent examples of this phenomenon.

Even some of the largest US-based firms have remarkably mobile headquarters. Using a unique firm-level database consisting of nearly 30,000 American headquarters, Vanessa Strauss-Kahn, Assistant Professor of Economics and Xavier Vives, the Portuguese Council Chaired Professor of European Studies, have studied the firm- and location-specific characteristics of American headquarter relocations between 1996 and 2001.

The authors discovered that HQs tend increasingly to concentrate in the ten largest US metropolitan areas, with the notable exception of New York City. Moreover, this relocation rate is perhaps surprisingly high, standing at nearly 5% of the firms sampled. This is a major reversal of tendencies observed in the 70s and 80s, when dispersals rather than concentrations were the norm. The largest US metropolis, New York City, continues to suffer an exodus of major companies, as has much of the area often referred to as the Boston-Washington Corridor.

Strauss-Kahn and Vives also observe that regional and local governments are very keen to subsidise the relocation of headquarters, due mainly to their tendency to attract business services and other headquarters, as well as more general commercial demand. Using their theoretical model, the authors are able to calibrate relevant deep parameters, and obtain an estimate of the own scale elasticity of headquarters production.

Perhaps unsurprisingly considering their growths in population, the "Sun Belt" states of the American South and West have benefited greatly from a migration of headquarters from the Northeast -- and even more from the perpetually economically depressed "Rust Belt" regions in much of the Northeast and Midwest, where the lost jobs in heavy manufacturing industries have often yet to be replaced in sufficient numbers.

The authors' main findings include:

· Headquarters tend to relocate to metropolitan areas with good airport facilities; low corporate taxes; low average wages; high levels of business services, and agglomerations of HQs engaged in the same types of activities.

· Younger corporations, as well as those with higher sales volumes, tend to relocate more often. So do foreign-based firms, and companies that come into being as a result of mergers.

· HQs in areas with good airport facilities; low corporate taxes; low average wages; high levels of business services are the most likely to stay put.

The paper's results are consistent with other findings, indicating declining communications costs facilitate the relocation of HQs in areas where they can be more productive. For many of the largest corporations, this has meant that they are no longer obliged to be near their production facilities. In fact, Boeing explicitly stated during its decision to move its corporate offices to Chicago in 2001 that it was geographically diversifying to benefit from a central location more befitting a global, more diversified, "horizontal" multinational.

INSEAD 2005

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