Business start-ups are widely recognized as important sources of innovation and long-run regional growth. Most start-ups fail within the first few years of existence, however, and failure rates vary considerably across industries. To explain such variation, recent studies have identified barriers to start-up survival, including an industry's minimum efficient scale of production and uncertainty associated with emerging markets for new products. The purpose of this Doctoral Dissertation Research Improvement project is to investigate whether the local economic environment in which a new firm operates influences the likelihood of its survival. Specifically, this study tests whether proximity to three key sources of Marshallian spatial externalities (labor pools, input suppliers, and knowledge spillovers) influences survival rates for start-up establishments in several manufacturing and advanced producer services sectors. Spatial externalities are likely sources of geographic variation in survival for two main reasons. First, spatial externalities enable smaller firms to reap external benefits of scale to offset internal scale disadvantages. Second, they help ensure successful innovation through the beneficial effects of knowledge spillovers. The study will use several complimentary analytical methods, including exploratory spatial analytical techniques, life-table analysis, and event-duration regression models. A new spatial modeling technique (Geographically Weighted Regression) will be used to test whether the relationship between externalities and survival is a spatially non-stationary process, as suggested by studies of industrial districts emphasizing the importance of the social and cultural context in strengthening localization forces. Central to the project is a newly developed longitudinal dataset from the Bureau of Labor Statistics, which will be used to identify start-up establishments in the continental U.S. in the early 1990s and track their performance over a decade.
Marshallian economies are at the heart of many core theories regarding urban spatial structure, regional growth, and business competitiveness. Although the considerable body of theoretical work on localization lends insight into the workings of the spatial economy, there is still scant empirical research to validate or dispel competing theories. This study will contribute to existing knowledge by testing for the existence of Marshallian externalities using new data and alternative outcome measures. It will be the first study of localization to explicitly test for spatial non-stationarity, which may reveal possible omitted variables, measurement error, or other types of misspecification bias. Finally, the study will address the important policy question of what factors generate an advantageous environment for new business success. Project results therefore should help inform policy initiatives aimed at boosting the performance of new and small businesses. As a Doctoral Dissertation Research Improvement award, this award also will provide support to enable a promising student to establish a strong independent research career.
