William E Fox and Matthew N. Murray
Many communities seek the siting of large branch plants based on faith that the regional economy will be stimulated by the siting. 1 Communities often make significant tax concessions and provide substantial other incentives to woo plants because of expected jobs and income. Economic analyses of expected effects from plant entry are sometimes performed, either to assist in setting the value of inducements during the recruitment process or to determine the magnitude of impacts after the actual siting decision. These studies are almost always based solely on the effects of the single firm, and possibly its suppliers, 2 with no consideration to potentially offsetting dynamic effects in the region.
Firm sitings are expected to increase economic activity because of the anticipated movement of capital and labour demand from other regions into the area. However, in an analysis of the Nissan siting, Fox ( 1990) observed there were no signs that either the county or the broader area in which Nissan located showed greater growth after the location than before. One possible explanation for the counter-intuitive finding is that the expectation of faster growth ignores the simultaneity that exists between the siting of a major branch plant and the broader set of siting and contraction/expansion decisions. For example, interdependencies are likely to exist between a major plant siting and overall capital and labour flows of other firms, because the factors affecting expected profits and amenities are altered by the siting decisions of large visible firms. For example, Fox and Murray ( 1990) describe new start-ups and branch firms making siting decisions by maximizing over the package of expected profitability and amenities available at alternative sites. The siting of a major plant may significantly reduce any excess supply of labour and may bid up wages, causing other firms to locate elsewhere. The chance that other firms see the area as the best location option is reduced to the extent that higher wage rates and less available labour supply