The Department of Economics’ Anubha Agarwal is examining an understudied aspect of how firms expand into multiple geographic markets. The PhD candidate’s study looks at how the number of geographic markets of firms in non-tradable sectors and competition in local markets increased in Canada between 2001-2018. Using her model, she finds that the rise in the innovation costs for entrepreneurs, compositional changes in entrants, and the increase in product differentiation between local varieties can explain most of these empirical trends. The study also finds that subsidizing the geographic expansion of more productive and more expansion-efficient firms can increase social welfare and efficiency in the economy.

“Firms can grow within a market by increasing their size, but my focus is on how firms grow by entering multiple geographic markets. Growth in geographic markets is important for firms in non-tradable goods and services sectors, like coffee shops or financial services that require physical presence near customers,” Agarwal said. [Read more…]