Retail Business Adjustment in Rural Hierarchies

Abstract

Many rural hierarchies are becoming increasingly dominated by a few regional growth centers while the retail sector in adjacent smaller communities either stagnates or declines. This study tests the hypothesis that the rate of adjustment of the retail sector to changing consumer spending patterns is uniform across different ordered communities in a rural hierarchy. Neoclassical investment theory is combined with central place theory to develop a conceptual model of the relationship between the retail sector and investment in a community. A three tiered 49 community hierarchy is constructed using data from the Minnesota Department of Revenue and the Report of Condition and Income of the Board of Governors of the Federal Reserve System. A crosssectional time series ordinary least squares regression model is employed to estimate retail coefficients of adjustment for the hypothesis testing. Regional estimates indicate only partial adjustment in the retail sector across the whole hierarchy to shifts in consumer spending patterns. Community estimates, which decompose the regional estimate, indicate retail businesses in the largest and mid-sized communities adjust totally in one period, but that retail businesses in the smallest communities do not. The faster rates of adjustment by retail businesses in the larger communities to changing consumer spending patterns may augment the development of regional growth centers in rural areas.