Anchoring of Firms in the Neighbourhood: Does Local Social and Physical Order Affect Local Firms' Investment Strategies?

Abstract

An increasing number of small- and medium-sized firms, whose low relocation propensity seems to point to strong local anchors, have moved to residential neighbourhoods. On the one hand, the neighbourhood context, an attractive production milieu with rich social network potential, may enable entrepreneurs to increase investments in either human capital (personnel) or physical capital (premises, production goods). These investments further anchor firms in a neighbourhood, where they contribute to a thriving local economy. On the other hand, high crime rates, a deteriorated physical environment and a lack of social capital can discourage entrepreneurs from investing locally. In this study, we conducted a multilevel analysis on the relative contribution of neighbourhood characteristics to entrepreneurial investment strategies and controlled for firm and entrepreneur characteristics. We found that neighbourhood cohesiveness and liveability—but not local market characteristics—make a small but significant contribution to explaining local entrepreneurs' investments. This contribution is even stronger for the smallest firms. Therefore, a spatially targeted policy aimed at improving social cohesion and safety is likely to benefit both residents and small local firms.

Acknowledgements

Data on perceptions of neighbourhood disorder are taken from the Politiemonitor Bevolking (2005), which was courteously provided by the ‘Directie Politie en Veiligheidsregio's’ of the Ministry of Internal Affairs, The Hague.