Location Decisions of Natural Gas Extraction Establishments: A Smooth Transition Count Model Approach

The economic geography of the United States’ energy landscape changed rapidly with domestic expansion of the natural gas sector. Recent work with smooth transition parameter models is extended to an establishment location model estimated using Poisson regression to test whether expansion of this sector, as evidenced by firm location decisions from 2005 to 2010, is characterized by different growth regimes. Results suggest business establishment growth of firms engaged in natural gas extraction was faster when the average area of shale and tight gas transition coverage in neighboring counties exceeded 17%. Local agglomeration externalities, access to skilled labor and transportation infrastructure were of more economic importance to location decisions in the high growth regime. Accordingly, growth rates were heterogeneous across the lower 48 States, suggesting potentially different outcomes with respect to local investment decisions supporting this sector. JEL codes: C21, C25, D21, R12, R30