Local Economic Instability and Business Location: The Case of Maine

Abstract

This paper investigates the effects of local economic instability on business location in Maine. Instability is represented by the quarterly, six-month, and annual persistence of employment in Maine municipalities, and seasonal spikes in local employment. Regression results suggest that businesses are attracted to areas with high short-term and seasonal stability, but that annual fluctuations in local employment are not a significant deterrent to new business activity. Services businesses are particularly sensitive to local employment fluctuations, presumably because they are often highly integrated into the economy. Findings suggest that policymakers can jointly pursue the objectives of local economic growth and stability. (JEL R11)