Business Ownership and Local Economic Well-Being

FrbAtlLocally Owned: Do Local Business Ownership and Size Matter for Local Economic Well-being?

Anil Rupasingha, Ph.D. Federal Reserve Bank of Atlanta Community and Economic Development Department

First published August 2013

The concept of “economic gardening”—supporting locally owned businesses over nonlocally owned businesses and small businesses over large ones—has gained traction as a means of economic development since the 1980s. However, there is no definitive evidence for or against this pro-local business view. Therefore, I am using a rich U.S. county-level data set to obtain a statistical characterization of the relationship between local-based entrepreneurship and county economic performance for the period 2000–2009. I investigate the importance of the size of locally based businesses relative to all businesses in a county measured by the share of employment by local businesses in total employment. I also disaggregate employment by local businesses based on the establishment size. My results provide evidence that local entrepreneurship matters for local economic performance and smaller local businesses are more important than larger local businesses for local economic performance.

Some of his finding

  • In places where there’s a greater share of people employed by resident-owned businesses, there is a higher real per capita income growth and employment growth and lower poverty rate, i.e. the local economy does better, the more people employed by locally-owned businesses.
  • The more people employed by micro-businesses, the more we see income growth and lower poverty.
  • The more people employed by medium-sized businesses (100-499 employees), the lower the the income and employment growth and higher the poverty.
  • The more people employed by large businesses (more than 500 employees), the lower the the income growth and higher the poverty.
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