(Small) Business Activity and State Economic Growth: Does Size Matter?

Abstract

Bruce D., Deskins J. A., Hill B. C. and Rork J. C. (Small) business activity and state economic growth: does size matter?, Regional Studies. Using a 1988–2002 panel of US state-level data, the impact of small and large business activity on gross state product (GSP), state personal income (SPI), and total state employment was examined. Business activity measures include annual counts of firms, establishments, and employees, the dollar value of payroll expenses, and annual births and deaths of establishments. The paper accounts for the simultaneity of business activity and overall growth, other determinants of economic growth, and spatial influences of small business activity. It is found that overall economic growth is faster when the net birth rate of new small firm establishments is positive.

Bruce D., Deskins J. A., Hill B. C. et Rork J. C. Activité des (petites) entreprises et croissance économique de l'Etat: l'importance de la taille, Regional Studies. S'appuyant sur une série de données au niveau des Etats-Unis pour la période 1988–2002, nous examinons les conséquences de l'activité des petites et grandes entreprises sur le produit brut de l'État (GSP), sur le revenu personnel par tête (SPI) et sur l'emploi total de l'État. Les mesures de l'activité des entreprises portent sur les comptes annuels des entreprises, des établissements et du personnel, la valeur en dollar des dépenses de personnel ainsi que sur les naissances et les décès annuels dans les établissements. Nous tenons compte de la simultanéité de l'activité des entreprises et de la croissance globale, d'autres déterminants de la croissance économique et des influences sur l'espace de l'activité des petites entreprises. Nous constatons que la croissance économique globale est plus rapide lorsque le taux des naissances des petites entreprises nouvelles est positif.

Petites entreprises Entreprenariat Croissance économique

Bruce D., Deskins J. A., Hill B. C. und Rork J. C. Aktivitäten von (Klein-)Unternehmen und Wirtschaftswachstum im Staat: Kommt es auf die Größe an?, Regional Studies. Anhand eines Panels mit Daten auf der Ebene der US-Bundesstaaten im Zeitraum von 1988 bis 2002 untersuchen wir die Auswirkung der Aktivitäten von Klein- und Großunternehmen auf das Bruttostaatsprodukt, das persönliche Einkommen im Staat und das Gesamtbeschäftigungsniveau im Staat. Zu den Maßstäben für die Unternehmensaktivität gehören jährliche Zählungen von Firmen, Einrichtungen und Mitarbeitern, der Dollarwert der Lohnaufwendungen sowie die jährliche Anzahl an Firmengründungen und Firmenschließungen. Wir berücksichtigen die Gleichzeitigkeit von Geschäftsaktivitäten und Gesamtwachstum sowie weitere Determinanten des Wirtschaftswachstums und räumliche Einflüsse auf die Aktivität von Kleinunternehmen. Wir stellen fest, dass sich das generelle Wirtschaftswachstum beschleunigt, wenn die Nettorate der Gründungen von neuen Kleinbetrieben positiv ausfällt.

Kleinunternehmen Unternehmertum Wirtschaftswachstum

Bruce D., Deskins J. A., Hill B. C. y Rork J. C. Actividad económica (pequeña) y desarrollo económico del estado: ¿et tamaño importa?, Regional Studies. Con ayuda de un panel de datos a nivel estatal de 1988–2002 de los EE UU., analizamos el efecto de la actividad comercial de pequeñas y grandes empresas en el producto bruto del Estado, los ingresos personales del Estado, y el empleo estatal total. En la actividad comercial se han medido los costes anuales de las sociedades, los establecimientos y empleados, el valor del dólar de los costes laborales y los nacimientos y fallecimientos anuales de los negocios. Tenemos en cuenta la simultaneidad de la actividad comercial y del crecimiento en general, otros determinantes del crecimiento económico y las influencias espaciales de la actividad de pequeñas empresas. Comprobamos que el crecimiento económico general es más rápido cuando es positiva la tasa neta de nacimientos de las pequeñas empresas nuevas.

Pequeñas empresas Empresariado Crecimiento económico

Keywords:

• Small business
• Entrepreneurship
• Economic growth

Keywords:

• M13
• O4

Acknowledgements

The authors are grateful to the US Small Business Administration, which provided a research grant for this work (Contract No. SBAHQ-05-M-0410). They also thank three anonymous referees, Brian Headd, Joe Johnson, Ying Lowrey, and Chad Moutray for helpful comments.

Notes

For additional details see, http://www.sba.gov/advo/.

Full source information for all data used in this study, see Appendix Table A1.

Another method involves the use of contemporaneous (rather than lagged) data while instrumenting for the endogenous variable in a first-stage regression. For example, if small business activity is endogenous in the GSP regression, one would need to estimate a first-stage regression of small business activity on (1) at least one instrumental variable (IV) and (2) all of the other exogenous variables in the GSP regression. The instrumental variable would be some factor that significantly affects small business activity but that does not have an independent influence on GSP. Given the obvious difficulty with finding suitable instrumental variables, the lag structure is preferred.

The convergence hypothesis is the idea that wealthier states will grow more slowly than poorer states. The hypothesis manifests itself as a negative coefficient on the initial level of economic activity.

For further explanation, see Wooldridge (2001). Note that this specification implicitly controls for time-invariant state-specific factors, such as institutional differences (Acemoglu et al., 2005), migration patterns (Keeble and Walker, 1994), and the like.

Often, spillovers are modelled through the use of a spatial lag, as in the case of Acs and Plummer (2005). In the present model, this would imply that state A's growth would be impacted by the growth of its neighbours. Because the authors believe the spillover is better captured in neighbouring entrepreneurial activity as opposed to neighbouring growth rates, the spatial lag approach is forgoed and a spatial cross-regressive term is instead included.

These data are published by the US Census Bureau and the Bureau of Economic Analysis.

Specifically, year-to-year growth is calculated as the natural log of (y _t /y _{t − 1}). Results were nearly identical when growth was calculated as [(y _t – y _{t − 1})/y _{t − 1}].

The Census defines births as establishments that have zero employment in the first quarter of the initial year and positive employment in the first quarter of the subsequent year. Similarly, deaths are establishments that have positive employment in the first quarter of the initial year and zero employment in the first quarter of the subsequent year. Small business establishment births and deaths are only available for March 1989 to March 2001, while other small business measures are available for 1988–2002. It should, therefore, be noted that births and deaths are technically lagged by 1.75 years since those data pertain to activity between March of the current year and March of the prior year. Births and deaths are preferred as being entered as two separate variables in the models such that effects of births might differ than effects of deaths. A single measure of net growth or turnover would be too restrictive in this sense. This issue will be returned to in the discussion of the results below.

Without controlling for the number of large firms, the measured impact of a new small firm would not be the same as the likely impact of a new small firm. In this sense, the measured impact would not be able to distinguish between the effect of a truly new small firm and a formerly large firm that shrinks in size into the small firm category.

The energy price index represents the cost of producing 1 million British thermal units (BTUs) of energy based on a weighted average of the cost of energy from different sources such as coal, natural gas, nuclear, etc., in each state.

These age distribution measures are viewed as more illustrative than the mean or median of a state's population.

These time-fixed effects also account for inflationary growth in the (logged) nominal variables in the models.

For more discussion of these issues, see Bruce and Deskins (2006) and Bruce and Gurley (2005), passim.

By 2001, most states had eliminated their inheritance, estate, and gift taxes. Instead, they rely on a ‘pick-up’ tax, which captures a portion of federal tax liability and does not affect the overall tax liability on the estate. For an excellent discussion of these taxes, see Conway and Rork (2004).

Indeed, in more restrictive models in which the two separate small firm establishment birth and death variables were replaced with a net growth measure (specifically, births minus deaths), the effect of net growth was generally positive and statistically different from zero, but very small in magnitude. This result is consistent with those in the baseline models.

Full results from all robustness checks are available from the authors upon request.