Does traffic congestion influence the location of new business establishments? An analysis of the San Francisco Bay Area

Chronic traffic congestion is widely assumed to negatively affect regional economic performance, but this assumption has been only lightly tested. We examine the traffic congestion–economic performance link using data for the San Francisco Bay Area and find that the effect of traffic on the regional economy may be both less significant and more nuanced than is widely assumed. Our analysis examines how traffic congestion affects the location of new business establishments in six industries: advertising, biotechnology, computer systems design, information technology manufacturing, securities, and, as a control, groceries & supermarkets. New business establishments are a key driver of economic performance because they account for the majority of job creation in the USA. We find little evidence that traffic levels affect the location of new establishments in the Bay Area, and when we do observe an effect it is a positive one; that is, after controlling for a wide array of factors known to influence firm location, new firms are often more likely to start up in already congested areas. This does not mean that traffic congestion attracts new firms, but instead that the access advantages new firms accrue from clustering near same-industry firms strongly outweigh the added impedance of traffic congestion in these built-up areas of agglomeration.