The determinants of business failures in the US low-technology and high-technology industries

Abstract

This study investigates the determinants of business failure rates for low-technology and high-technology manufacturing industries across the forty-eight contiguous US states over the period 1984 to 1993. The main focus is on examining the role that some key state fiscal measures and federal transfer grants to states play in explaining business failure rates. It is found that regional variations in sales taxes, highway expenditures, bank loans, university R&D, patents, and outstanding debt play a statistically significant role in explaining variations in regional business failure rates. Interestingly, it is found that corporate development assistance programmes and small business loans tend to improve small business survival rates for hightechnology industries but they do not for low-technology industries. Findings also suggest that policymakers can effectively use local/regional policy instruments to bring the current business failure rates to the desired level more easily within hightechnology industry groups than within low-technology industry groups.