Date of Award

8-2008

Level of Access Assigned by Author

Campus-Only Thesis

Degree Name

Master of Science (MS)

Department

Resource Economics and Policy

Advisor

James C. McConnon, Jr.

Second Committee Member

Todd Gabe

Third Committee Member

George K. Criner

Abstract

The attention put on microenterprises in economic development planning has been increasing in recent years. Policies are shifting from traditional regional development strategies aimed at attracting large firms to initiatives that support the startup and growth of small-scale enterprises. Advocates of small business development argue that microbusinesses are an integral part of the renewal process that pervades and defines market economies. In addition, the development of microbusinesses is often described as a strategy to alleviate poverty and to provide insulation against the adverse effects of recessions. Despite their growing popularity in economic development, very little research has been devoted to the effects of microbusinesses on regional economic growth. The purpose of this paper is to examine the influence of microbusinesses, defined as firms employing between one and four employees, on regional economic growth from 1990 to 2000. A unique application of the well-known Carlino-Mills county growth framework is proposed to investigate the relationship among population growth, employment growth and microbusinesses. Along with the key explanatory variable of interest that measures the proportion of microbusinesses in U.S. counties, additional factors related to climate, amenities, human capital and business costs are included in the model to control for other attributes expected to affect regional population and employment growth. In addition, the model was estimated separately for urban, suburban and rural counties, for selected sectors, and for nine geographic regions. The county-level variables were constructed using information from the U.S. Census, City and County Data Book and County Business Patterns. Results from a two-stage least-squares estimation of the model suggest that the percent of microbusinesses has a positive and statistically significant effect on countylevel employment growth during the 1990's. Model estimates suggest that a one percentage point increase in the proportion of microbusinesses raises employment growth by 0.304 percentage points. On the other hand, a relative abundance of large businesses (i.e., businesses with 250 or more employees) is associated with negative growth rates of employment. Although the presence of microbusinesses is found to support employment growth, these very small businesses do not have a direct positive effect on population growth. This suggests that, as one might expect, individuals do not consider the local availability of microbusinesses when making their migration decisions. Empirical results indicate that climate and natural amenities influence population growth. In particular, counties with warm winter temperatures, low summer humidity and varied topography appear to be more desirable places to live. Focusing on employment, we find that educational attainment is a key factor supporting regional economic vitality, while taxes per capita and a county's distance to the nearest airport has a negative effect on employment growth between 1990 and 2000. Other results suggest that microenterprises have a positive and significant effect on employment growth for urban, suburban and rural counties. Looking at the industry sectors separately, results suggest that manufacturing microenterprises were strongly correlated with employment growth during the 1990's.

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