Moving to the hinterlands: agglomeration, search costs and urban to rural business migration

Abstract Business location and relocation decisions tend to favor urban areas over rural areas, mainly due to the benefits derived from agglomeration economies. However, recent data from the USA show that rural counties have attracted some businesses from urban counties. This is the first study to focus on these relocations and to explore what locational factors drive these migration flows. We pay specific attention to measures of agglomeration in the form of urbanization economies, market potential and regional specialization. Using county-to-county relocation data, origin and destination characteristics and differences of those characteristics, we find that while traditional measures of urban agglomeration such as proximity to urban locations and population density as pull factors show statistical significance and the expected positive sign, the role of more specific measures such as regional specialization and market potential has the opposite or no effects on the relocation of businesses from urban to rural areas. A key and strong finding is that relocating establishments seem to prefer destination locations that are similar to their respective origins in most respects, except natural amenities where moving establishments prefer dissimilar locations. In particular, if relocation is to high-amenity rural locations, it takes place even in the absence of significant differences in other location factors.