Is Educational Attainment a Significant Determinant of Where Firms Decide to Locate or Expand Operations?

Abstract

Firms seeking sites for new or expansion plants rely on their ability to assess the benefits and costs generated by locating operations in a given state. State governments strive to understand the issues important to firms who are seeking a site for new operations or branch plants. They do so because attracting branch plants and new firms is critical to their economic growth. In addition to factors traditionally considered important to industrial location decisions (energy prices, wage levels, unionization, taxes, and public services), this study also considers the impact of the average level of education attained by the population of a state. Specifically, this study hypothesizes that the average level of education attained by a state's labor force significantly affects the location decisions of firms oriented toward local inputs.

Results indicate that educational attainment is a significant determinant of where firms in the transportation industry decide to locate or expand operations. However, educational attainment is not a significant determinant for the electronic equipment industry. Wage and unemployment levels are significant factors for both industries. With the exception of educational attainment and tax levels, the results do not vary across industries. Since industries such as transportation equipment seem to place a premium on states with a relatively high level of education attainment, states wishing to attract this type of companies may find it beneficial to encourage higher education, both for the well-being of its residents and for the economy of the state.