Determinants of intra-urban location of manufacturing employment : an analysis of survey results for Bogota, Colombia

Urban and Regional Report No. 81-3 DETERMINANTS OF INTRA-URBAN LOCATION OF MANUFACTURING EMPLOYMENT: AN ANALYSIS OF SURVEY RESULTS FOR BOGOTA, COLOIBIA* By Kyu Sik Lee January, 1982 (Revised) - This report was prepared under the auspices of the City Study Research Project (RPO 671-47) as City Study Project Paper No. 23. The views reported here are those of the author, and they should not be interpreted as reflecting the views of the World Bank. This report is being circulated to stimulate discussions and comment. An earlier version of this paper was presented at the Annual Meetings of the Eastern Economic Association, Plhiladelphia, Pa., April, 1981. Urban and Regional Economics Division Development Economics Department Development Policy Staff The World Bank Washington, D.C. 20433  PREFACE This paper forms part of a large program of research grouped under the rubric of the "City Study" of Bogota, Colombia, being conducted at the World Bank in collaboration with Corporacion Centro Regional de Poblacion. The goal of the City Study is to increase our understanding of the workings of five major urban sectors - housing, transport, employment location, labor markets, and the public sector -- in order that the impact of policies and projects can be assessed more accurately. The author has benefited from comments and discussions with Gregory Ingram, Douglas Keare, Steve Putman, and participants in seminars at The World Bank and Corporacion Centro Regional de Poblacion. He thanks Maria Clara de Posada and Jose Fernando Pineda who conducted the survey of establishments; Wilhelm Wagner and Leslie Kramer for research assistance.  ABSTRACT This paper describes the sampling strategy of the establishment survey conducted in Bogota to study the determinants of manufacturing employment location, and reports descriptive findings based on the survey. The analysis of the survey results revealed that the industry is dominated by single plant operations with a moderate production scale; most firms use a line-flow type production process housed in a single story plant; new firms are small and operate in old buildings. Most of shipments of inputs and final products are made by trucks; rail is seldom used. The firms export less than 50% of their products to outside Bogota. The plant relocation tends to accompany changes in production technology. For most movers, the distance moved was short, about 1-2 km; the large size firms moved longer distances. More than 80 percent of workers stayed with the same firms after relocation. For the majority of firms, both input and output delivery distances and the commuting distance of produc- tion workers stayed about the same r.fter move while the commuting distance of administrative workers increased only slightly. The plant space was the most important factor in the firm's location choice, followed by rent payment, proximities to suppliers, amenities of zones, road access, proximities to clients and the quality of public services. Twentv-two percent of sample firms had a plan to relocate within the next five years; the medium size firms (with about 50 employees) showed the highest propensity to relocate, while most of the large firms (with more than 100 employees) did not have such a plan.  TABLE OF CONTENTS Page 1. Introduction . . . . . . . . . . . . . . . . . . . . . . 1 2. Overview of Bogota's Employment Location Patterns . . . . 3 3. Sampling Strategy and Sample Outcome . . . . . . . . .. 9 4. Selected Findings . . . . . . . . . . . . . . . . . . . 14 5. Summary of Findings,and Concluding Remarks . . . . . . . 34 References I  1. Introduction The work reported in this paper is part of the continuing research effort in the Bogota "City Study" project in the World Bank. This paper presents selected findings on the determinants of manu- facturing employment location in Bogota, Colombia, based on the establishment survey conducted for the City Study project. Using the annual industrial directory data compiled by the National Statistics Department (DANE), Bogota's manufacturing location patterns and their changes were extensively analyzed before (Lee, 1981); this analysis, performed in terms of births, deaths, and relocation of firms, revealed a high degree of employment location dynamics and strong evidence of the spatial decentralization of manufacturing employment in Bogota, which is briefly described in the next section. In order to explain these location patterns, a survey of manufacturing establishments was conducted in Bogota usitug the indus- trial directory as the sample base. The survey questionnaire was designed to take no more than one hour to respond and did not require the respondents to look up their accounting books, but the question- naire contained a large amount of information with nearly 300 compurer readable variables. This paper will present most salient aspects of the survey results which provide the basis for understanding the changing location patterns of manufacturing employment summarized in the next section. The analysis in this paper is descriptive; an analytical model of employment location was constructed earlier and estimated using this survey data (Lee, 1982).  -2- After a brief overview of the manufacturing employment location patterns in Bogota, the sampling strategy is briefly described and the nature of the sample outcome is summarized. -/ In the rest of the gaper, the survey results are presented in three categories of findings: (1) Establishment characteristics, (2) site characteri3tics, and (3) the factors considered to be important for the respondent's location.-choice. These results are contrasted and compared among the sample establishments by establishment size, location history (i.e., mature firms, births, and movers), and tvpe of industrv. The underlying theoretical framework is that of a firm of particular type will locate at a site with particular attributes in such a way that the selected location is optimal to the firm in an urban area, in terms 2/ of profits, costs, or some other criteria.- The establishment charac- teristics include type of products, production process, building characteristics, lot size, floor space, and employment size by skill. The site attributes include proximities to product markets and input suppliers, commuting distance, transport modes, the quality and availability of public utilities and municipal services. 1/ The studies by Schmenner (1981) on Cincinnati and New England were useful for the survey work reported in this paper. 2/ See Lee (1982) for a formulation of such a model and the estimation results using the same data set described in this paper.  33 2. Overview of Bogota's Employmetc- Location Patterns-/ In the studies of employment location in the literature, changes in location patterns in an urban area were examined at the margin by decomposing changes in the stock of employment in an area by the flows of births and deaths, relocation of jobs, and stationary 4 / growth and decline of employment.- This approach is analytically attractive and avoids cross-section bias. The Bogota study also followed this approach, and the survey results reported in this paper will contrast and compare the behavioral responses by this classifi- cation of firms. According to a 1977 DANE household survey, manufacturing jobs accounted for 25 percent of employment in Bogota,5- which comes close to the manufacturing share of 25 to 30 percent in large U.S. cities such as Boston, Chicago, and Los Angeles. In terms of employ- ment dynamics, however, Bogota does not resemble large old U.S. cities 3/ This part-comes from a previous study reported in Lee (1981). 4/ Schmenner (1981), Struyk and James (1975), and Leone (1971) in the U.S., and Firn (1976), Dennis (1978), and Mason (1980) in thle U.K. 5/ In 1977, Bogota's population was less than 4 million.  -4- like New York, Boston,or Cleveland. Table 1 indicates that the annual birth rate of firms in Bogota exceeds that of all five U.S. cities compared; Phoenix, with a birth rate of 7.6 percent,comes closest to Bogota's 8.8 percent. It should be also noted that the annual birth rate is greater than the annual death rate for Bogota, Cali,-/ Phoenix, and New York;-/ the opposite is true for Boston, Minneapolis, and Cleveland. In all cases, the activity rates in terms of establishments are greater than the rates based on employ- ment. This indicates that the marginal firms are small ones which have a greater propensfty to move, to start up and close down business. Bogota is divided into 38 subareas called comunas. To ob- serve changes in employment location patterns, we aggregated the comunas to 6 rings (see the attached map). In Table 2, we find strong evidence of decentralization of manufacturing employment in Bogota. During 1970-75, the central business district (Ring 1) expe- rienced a net loss of manufacturing jobs, but manufacturing employment grew at an accelerating rate as the distance from the city center increases. This resulted from a steady movement of manufacturing firms outward as they grew larger and needed more space. Moreover, small new firms (with less than 25 employees) tended to locate in the central area wnere various externalities were readily available, and the birth of large new firms (with 100 or more employees) tended to take place in the outer areas of the city. 6/ Cali is the third largest city in Colombia with a population of about 1 million. 7/ This was for the late 60's. The situation might have been reversed by now. 8/ The data were unable to reject the "incubator hypothesis" (Lee, 1981).  -5- Table 1:. BIRTH, DEATH AND RELOCATION RATES IN BOGOTA, CALI AND U. S. CITIES Births Denth_s a/ _______ _ l Establish- Employment Establish- . Employment Establish- Employment ments ments ments % of Annual % of Annual Z of Annual % of Annual % of Annual Z of Annua base rate base rate base rate base rate base rate base rate a! Cleveland-! , 9.97 3.22 2.59 0.86 14.07 4.49 7.75 2.52 13.83 4.41 5.77 1.89| Minneapolis- 12.29 3.94 6.17 2.02 18.00 5.67 11.25 3.62 15.93 5.05 8.28 *2.69 St. Paul Boston a/ 6.10 1.99 1.30 0.43 13.40 4.28 8.00 2.60 9.80 3.17 4.70 1.54 PhoeniLmW 24.40 7.55 12.10 3.88 20.20 6.32 5.30 1.74 8.90 2.88 4.70 1.54 New Yor.b" 10.21 4.98 3.95 1.96 7.56 3.71 3.55 1.76 11.45 5.57 1.24 0.62 Bogota- 52.38 8.79 31.96 5.70 27.01 4.90 12.61 2.40 19.12 3.56 16.59 3.12 C/ Caili 43.13 7.44 24.48 4.48 26.88 4.88 11.27 2.16 18.33 3.42 10.40 2.00 a8 From R. St'uyk and F. James, Intrametropolitan EmDloyment Location, Legto Books, 1975; covered 1965-68 period (1965- was the base year). 1V From R. Leone, Location of M!anufacturing Activity in the New York Metropolitan Area, 1971; covered 1967-69 period (1967 was the base year). c! The period covered was 1970-1975; 1970 was used as the base year. The base year figures can be seen in Lee (1978). d/ In the case of Bogota, the figures include -stablishments whiUch moved at least to another seccion chang ig DANE's six--digit zone code; in the case of Cali the figures include esta1l6ishments which moved at least to another barrio changing the first four digits of DANE's zone code. Including the moves within the same seccion, the annual relocation rate of establishments was 5.12 pircent for Bogota and 4.28 percent for Cali. Source: Lee (1981).  -6- BOGOTA: Ring System Based on Comunas ,\> 6 5 XV I  -7- Tabla 2: DISTRIBUTI0NF MAUFACTURniG EMPL0OYENT-: BY RING, BOGOTA, 1970-75 1,970 1,973 Annual Average Ring Persons % Persons Z GrOth Rate (Z) 1(CBD) 4,538 5.60 4,102 3.47 -2.00 2 11,767 14.53 14,898 12.59 4.83 3 34,351 42.42 47,858 40.44 6.86 4 18,112 22.37 25,958 21.94 7.46 5 11,548 14.26 24,047 20.32 15.80 6 391 0.48 729 0.62 13.27 a.a. 266 0.33 741 0.63 - Total 80,973 100.00 118,333 100.00 7.88 a/ Establishments with 10 or more employees. Source: Lee (1981).  8 3. Sampling Strategy and Sample Outcome - A sample of 126 establishments interviewed in the survey was.drawn from DANE's 2,629 distinct firm records in the industrial 10 / directory files covering 1970-1975,- stratified by the following four categories: (1) location history, i.ee., mature firms, movers, and births;1-/ (2) the zone system defined by 38 comunas; (3) the type of industry defined by three digit SIC codes; and (4) firm size by employment. In order to minimize the cost of sampling while having a sufficinet number of observations for econometric estimation, we chose the, textile industry and the fabricated metal industry as two main industries to be studied. These industries without much locational idiosyncrasy should be more amendable to policies than some other industries such as cement or steel. Moreover, both industries had a large share of establishments in Bogota's manufacturing, accounting for 50 percent of total manufacturing employment. The homogeneity of firms in each industry aroup makes it possible to test behavioral hypotheses with sufficient degrees of freedom. However, we added as a third group, the "other industries" category, to do mainly descriptive studies about establishments in various other types of industries. 9/ This part was reported earlier in Lee (1982) where the same data set was used. 10/ The origiinal DANE (National Statistics DeDartment) files had 3,388 records for the six--year period. In order to maintain consistency in coverage over the period, however, firms with less than 10 employees or those which appeared only for one year in the directory were not included in our master file. The basic structure of the i.ndustrial directory data was documented. in Lee (1978). 11/ Mature firms are defined as those that appeared in all six annual directories with the same address; "births" are those chat appeared for the first time in any year during 1971-1975; movers are those - --ii -e n it r Qota ..in nnrinz 1971-L975. ..  -9- The second consideration given in the sampling process was to over-sample large firms so that the number of workers included in the samp e could be maximized. Finally, an attempt was made to cover a wide geographic area in such a way that sDatial analyses could be possible including the estimation of the rent and wage gradients covering the entire city area. Our target sample size was 120 with about equal shares of establishments among the three types of location historv. 12/ The realized sample of 126 establishments- consists of: 58 mature firms, 50 movers (including two firms that moved to Bogota from outside) and 18 births (see Table 3). The newly established firms were mostly small (Table 5). 13/ The sample coverage across zones was satisfactory; with 27 comunas covered, the spread was fairly even over the three Rings which have high manufacturing employment densities (see Table 2 and the map on page 6). On the other hand. onlv a small number of establishments was selected from Ring I (CBD) and Ring 6 (three residential comunas in the north). In some cases the four-way stratification severely limited the possibility of drawing sample establishments from a specific population category. For example, not enough textile firms were located in certaiin comunas. Therefore, sample establishments were also selected from two 2k Of the 128 interviews completed successfully, two cases had to be dropped from the final sample: One firm was located outside Bogota, and the other one had recently moved to another city (Barranquilla). 13/ Making interview appointments with small new firms was extremely difficult and the rate of making a final visit for interview was low.  - 10 - Table 3: SAMPLE COMPOSITION: NUMBER OF ESTABLISHMENTS BY ZONE AND FIRM TYPE Movers Movers Within From Zone Mature Births Bogota Outside Total 0 2 2 0 4 Ring 1 0.00 50.00 50.00 0.00 100.00 0.00 11.11 4.17 0.00 3.17 7 3 5 0 15 Ring 2 46.67 20.00 33.33 0.00 100.00 12.07 16.67 10.42 0.00 11.90 17 6 13 1. 37 Ring 3 45.95 16.22 35.14 2.70 100.00 29.31 33.33 27.08 50.00 29.37 16 3 13 1 33 Ring 4 48.48 9.09 39.39 3.03 100.00 27.59 16.67 27.08 50.00 26.19 16 4 12 0 32 Ring 5 50.00 12.50 37.50 0.00 100.00 27.59 22.22 25.00 0.00 25.40 2 0 3 0 5 Ring 6 40.00 0.00 60,00 0.00 100.00 3.45 0.00 6.25 0.00 3.97 58 18 '48 2 126 Total 46.03 14.29 38.10 1.59 100.00 100.00 100.00 100.00 100.00 100.00 Source: The City Study Establishment Survey  Table 4: SAMPLE COBOSITION: NUMBER OF ESTAHLIS1.TS BY ZONE AND-INDUSTRY Non- Fabricat- electric Zone Textile Apparel ed Metal Machinery Ote-r Total 1 1 1 C 1 4 Ring 1 25.00 25.00 25.00 0.00 25.00 100.00 3.03 10.00 2.86 0.0 0 2.56 3.17 3 1 4 1 6 15 Ring 2 20.00 6.67 26.67 6.67 40.00 100.00 9.09 10.00 11.43 11.11 15.38 11.90 6 6 13 4 8 37 Ring 3 16.22 16.22 35.14 10.81 2:1.62 100.00 18.18 60.00 37.14 44.44 2Q..51 ;9.37 12 1 9 2 9 33 Ring 4 36.36 3.03 27.27 6.06 27.27 100.00 36.36 10.00 25.71 22.22 23.08 26.19 10 1 6 2 13 32 Ring 5 31.225 3.13 18.75 6.25 40.63 100.00 30.30 10.00 17.14 22.22 33.33 25.40 1 0 2 0 2 5 Ring 6 20.00 0.00 40.00 0.00 40.00 100.00 3.03 0.00 5.71 0.00 5.13 3.97 33 10 35 9 39 126 Total 26.19 7.94 27.78 7.14 30.95 100.00 100.00 100.00 100.00 100.00 100.00 100.00 Source: The City Study Establishment Survey  -12- Table 5: SVMLE C0MPOSITION: NUMBER OF ESTABLISHMENTS BY FIRM TYPE AND EMPLOYMENT SIZE 100 - 1 - 421 5 - 9 10 - 19 20 - 49 50 -99 9,999 Total Mature 0 1 8 13 4 32 58 0.00 1.72 13.79 22.41 6.90 55.17 100.00 0.00 25.00 38.10 34.21 23.53 72.73 46.03 - 6.00 16.25 33.54 81.75 324.72 194.66 b Births 1 2 3 9 1 2 18 5.56 11.11 16.67 50.00 5.56 11.11 100.00 50.00 50.00 14.29 23.68 5.88 4.55 14.29 3.00 6.00 13.00 26.56 63.00 174.00 39.11 Movers 1 1 10 16 12 10 50 2.00 2.00 20.00 32.00 24.00 20.00 100.00 50.00 25.00 47.62 42.11 70.59 22.73 39.68 3.00 7.00 13.50 31.94 78.75 335.60 99.14 Total 2 4 21 38 17 44 126 1.59 3.17 16.67 30.16 13.49 34.92 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 3.00 6.25 14.48 31.21 78.53 320.34 134.53 a/ Persons. b/ The bot-^om number in each cell is the mean employment size of firms in that cell. Source: The City Study Establishment Survey. I-  -13- other industry categories that are closely related with the two main industries, namely, the textile industry was supplemented by the apparel industry, and the fabricated metal industry by the non-electric machinery industry. As shown in Table 4, the final sample has fairly even shares among the three industry groups: about 35% each for the two main industry groups and 30% for the "other" category. In Table 5, we see that the average size of mature firms in the sample is about four times larger than the average size of births, and more than twice that of movers. This resulted from the design of over-sampling of large size firms; the sanple average firm size of 135 persons is about twice as large as the average firm size of the establishments in the population.14/ 15 / 4. Selected Findings - This section presents selected findings of the survey results in three categories, as mentioned above: (1) Establishment characteristics, (2) site characteristics, and (3) important factors for location choice. Particular attention is given to the characteristics of the movers and importa t factors that influene their location choice. The discussion will be focused on variations among the three 14/ According to the industrial directory file of 1975, the average firm size of 1,829 establishments with 10 or more employees was 65 persons. 15/ The data file has gone through a number of iterations of cleaning and editing. The final data file is stored with a label, D/WILI/KSLSURVEY297, at the World Bank computer center.  -14- types of firms and variations across the space as the distance from the CBD increases. Establishment Characteristics Production plant. Table 6 shows several aspects of operational characteristics of the production plant. For the sample firms as a whole, more firms use a line-flow type production process housed in a single story plant. There is, however, an interesting contrast between the births on one hand, and the mature firms and the movers on the other. The "birth firms" 16/ - are much smaller in size (about one-third of the sample average) without having much land space for expansion. Compared with other two types of firms, a large proportion of the birth firms tend to produce with a batch process type production technique on a single shift basis. The buildings used by the birth firms are much older (twice as old as those of movers) and tend to be more complex with a combination of single and multi-level structures. These general plant attributes of the birth firms represent the characteristics of places of manufacturing activities in the central area. These findings on the attributes of the birth firms are consistent with the "incubator hypothesis" which states that small new firms tend to locate in a central area where various externalities are readily available. 17/ 6-/ For convenience, the births, i.e., newly established firms, will be called the "birth firms." 7/ The "incubator Hypothesis" was formally tested in Lee (1981) for Bogota. Struyk and James (1975) tested this hypothesis for U.S. cities.  -15- Table 6: PLANT CHARACTERISTICS BY FIRM TYPE Mature Births Movers All Production Process (% of estab.) Batch 29 44 24 29 Line flow 45 33 50 45 Both 16 11 10 13 Other 10 12 16 13 Total 100 100 100 100 Average Age of Buildings (yearsJ 19 24 12 17 Land for Ex=ansion (% of estab.) Yes 41 17 30 33 No 57 78 56 60 n.a. 2 5 14 7 Total 100 100 100 100 Number of Floor Levels (% of estab.) One story 64 67 64 64 Two stories 19 17 14 17 Three stories 5 0 8 6 Four or more 2 0 2 2 Combination 10 17 12 12 Total 100 100 100 100 Number of 8-Hour Shift (% of estab.) One 48 83 70 62 Two 33 6 14 21 T-ree 16 11 16 15 n.a. 3 - - 2 Total 100 100 100 100 Average EmDloyment Size (Persons) 195 39 99 135 Number.of Establ