A Cross-Sectional Analysis of the Importance of Government Efficiency in Firm Location Decisions of New Businesses in Philippine Cities in 2018

Why do new businesses locate in a particular location? Existing studies have considered various factors such as market and labor, among others, but not many firm location studies have taken into account the importance of the regulatory environment through government efficiency, which has prompted the pursuit for this research. In this study, we used the Cities and Municipalities Competitiveness Index (CMCI), a local competitiveness index in the Philippines, to measure how government efficiency affects the location of firms. We analyzed the data using linear regression and used the count of new businesses in cities in 2018 as the dependent variable against three of the core components of the CMCI, 1) Economic Dynamism, 2) Government Efficiency, and 3) Infrastructure, as independent variables. Here I found that government efficiency, through the sub-indicators therein, is a significant factor in the firm location decision of new businesses.