Small Business Start-Ups in the United States: Estimates of the Effects of Characteristics of States

Abstract

This paper estimates how the characteristics of American states affect small business start-ups. The paper is of interest for three reasons: two methodological contributions; and, the paper's empirical findings. First, unlike most of the business location literature, the paper relies on micro data. The availability of micro data allows a focus on one specific type of business location decision, the small business start decision. Most previous business location research has used an aggregate business activity measure as the dependent variable.' Examining one type of business location decision allows the use of a micro model of profitmaximization. Aggregate measures of local economic activity reflect small business start-ups, new branch plants, plant expansions and contractions, and plant closings. These decisions probably are made in very different ways. These differences make it difficult to devise an aggregate model of business location.