Do firms flee traffic congestion?

Much transport policy aims to use congestion relief measures to support economic activity, but planners know relatively little about how individual firms respond to traffic congestion. This study helps fill this gap by exploring individual firm location responses to traffic congestion within the Philadelphia metropolitan area between 2003 and 2007. This study tests whether existing, basic-industry firms flee congested areas to minimize exposure to the congestion externality. Relocation responses are estimated and compared for five separate industries (finance and insurance, health care, manufacturing, real estate and leasing, and wholesale trade) using firm-level data collected by InfoUSA and obtained from ESRI. Results suggest that congestion influences firm location decisions, but that the scale of congestion is important. While firms appear to relocate out of areas with high regionally-scaled congestion, areas with high local congestion are associated with a lower likelihood of relocating. In sum, while regional congestion appears to be a drag, local congestion appears to function as an amenity – implying that there is truth in the competing notions among engineers and economists of congestion as a diseconomy and among urban designers of congestion as an amenity.