Business survival rates across the urban–rural divide

Abstract

Scholars and practitioners have concluded that entrepreneurship and small business development is central to community economic development. Often times community members, including elected officials, are skeptical of the importance of new and small firms due to their seemingly high failure rate. In this study we use the National Establishment Time Series (NETS) database of US establishments survival rate of new firms in each US county. For each county, we identify the number of new firms born in each year and calculate their survival rate as the share of firms from each cohort still operating five years later. We then explore how survival rates change over a simple urban–rural spectrum from 1990 to 2007. As expected, survival rates vary significantly by birth year, and new businesses in rural communities tend to have higher survival rates than those in urban communities. We close the study with a discussion of specific policy options.

Keywords:

• Business survival
• economic development
• entrepreneurship
• rural and urban

Notes

1. There is an interesting perspective that many small business owners start their business because they enjoy the nature of the work (e.g. creative) and find that as the business grows they are drawn away from the work that motivated their business and into day-to-day management of the business. Many of these entrepreneurs elect to remain small so that they can focus on the work that drew them into the business.

2. Our survival rates tend to be consistently higher than those that rely on the Bureau of Labor Statistics Longitudinal Database (LDB) or the US Small Business Administration derived databases. This is partially explained by the exclusion from the NETS database any businesses that did not survival at least one year.