New Firm Entry, Survival, and Growth in the United States: A Comparison of Urban, Suburban, and Rural Areas

Abstract

Problem: Many policymakers and planners believe that entrepreneurship is key to rejuvenating American communities amid continued pressures of globalization and technological change; yet, despite its present popularity, we still know relatively little about the influence of different types of locations on new business creation and performance. Purpose: This study examines how new firms' entry, survival, and growth differ among central cities, suburbs, small cities, and rural areas inside and outside metropolitan areas, to allow policymakers and planners to develop more informed development strategies. Methods: I use a unique establishment-level longitudinal database to examine the formation, survival, and growth of new manufacturing and advanced services firms in the continental United States using a mix of descriptive and inferential statistical methods. Results and conclusions: This study shows that entrepreneurial performance differs across a continuum of locations from nonmetropolitan rural to urban core. New firms in central cities have higher failure rates but faster rates of employment growth in advanced services. Nonmetropolitan rural places are undersupplied with new high-tech manufacturing and both high-tech and conventional advanced services firms, and have lower growth rates in both high-tech and conventional manufacturing and advanced services. Intermediate places in the urban hierarchy (suburbs, small cities, and rural segments of metropolitan areas) often have relatively high rates of new firm entry, survival, and growth. No environment favors entrepreneurship across all sectors and performance measures. Takeaway for practice: Policymakers seeking to develop effective entrepreneurial strategies should understand the relative advantages and disadvantages facing entrepreneurs in different types of areas. Central cities' lower new firm entry and survival rates may be due to higher costs and regulatory barriers, or may be a result of their attracting riskier endeavors that also have potential for more rapid growth. The growth of firms started by rural entrepreneurs, by contrast, is constrained by limited local markets and relative isolation, and likely to benefit from strategies that expand the reach of new firms into broader markets. Research support: This research was supported by the Ewing J. Kaufman Foundation's Dissertation Fellowship program and the National Science Foundation's Doctoral Dissertation Research Fellowship program. All research using the confidential Longitudinal Database (LDB) was conducted on site at the Bureau of Labor Statistics offices in Washington, DC, and has been cleared for public distribution. The author is solely responsible for the content of this article.