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Spatial Differences in Manufacturing Firm Births and Deaths and Local Economic Conditions: Evidence from Pennsylvania

  • Cole, Ismail M.

    (California University of Pennsylvania)

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    This study uses county-level manufacturing data (1985-1994) from Pennsylvania to investigate the spatial variation of relationships among manufacturing firm births, deaths, and certain local economic variables suggested by the theoretical literature. To do this, a panel data vector autoregressive method is employed, which, unlike the more customary models of studies of this nature, allows for, among other things, full interdependence among all variables and makes adjustment for omitted-variable bias related to "area-specific" effects. The results, which in some cases confirm and in others contradict those of some of the leading studies on the issue, reveal a rich network of interactions among the variables that indicate that firm births and deaths and local economic conditions are mutually driven. The main conclusion drawn from the results is that firm birth rates and, hence, economic growth, are highest in those counties with: (i) a relatively high proportion of small firms; (ii) lower unemployment; (iii) a growing market demand; (iv) a lower-than-average school property tax rate; (v) a higher-than-average quality of public education; and (vi) some urban agglomeration advantages. Some of the implications of the findings for local economic development strategy are considered.

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    Article provided by Southern Regional Science Association in its journal The Review of Regional Studies.

    Volume (Year): 30 (2000)
    Issue (Month): 2 (Fall)
    Pages: 215-236

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    Handle: RePEc:rre:publsh:v:30:y:2000:i:2:p:215-236
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    1. Steven J. Davis & John Haltiwanger & Scott Schuh, 1993. "Small Business and Job Creation: Dissecting the Myth and Reassessing theFacts," NBER Working Papers 4492, National Bureau of Economic Research, Inc.
    2. Hall, Bronwyn H, 1987. "The Relationship between Firm Size and Firm Growth in the U.S. Manufacturing Sector," Journal of Industrial Economics, Wiley Blackwell, vol. 35(4), pages 583-606, June.
    3. Highfield, Richard & Smiley, Robert, 1987. "New business starts and economic activity : An empirical investigation," International Journal of Industrial Organization, Elsevier, vol. 5(1), pages 51-66, March.
    4. Sims, Christopher A, 1980. "Macroeconomics and Reality," Econometrica, Econometric Society, vol. 48(1), pages 1-48, January.
    5. Kevin T. McNamara & Warren P. Kriesel, 1988. "Manufacturing Location: the Impact of Human Capital Stocks and Flows," The Review of Regional Studies, Southern Regional Science Association, vol. 18(1), pages 42-48, Winter.
    6. Storey, David J & Jones, A M, 1987. "New Firm Formation--A Labour Market Approach to Industrial Entry," Scottish Journal of Political Economy, Scottish Economic Society, vol. 34(1), pages 37-51, February.
    7. Holtz-Eakin, Douglas & Newey, Whitney & Rosen, Harvey S, 1988. "Estimating Vector Autoregressions with Panel Data," Econometrica, Econometric Society, vol. 56(6), pages 1371-95, November.
    8. Johnson, P S & Cathcart, D G, 1979. "The Founders of New Manufacturing Firms: A Note on the Size of Their 'Incubator' Plants," Journal of Industrial Economics, Wiley Blackwell, vol. 28(2), pages 219-24, December.
    9. White, Halbert, 1980. "A Heteroskedasticity-Consistent Covariance Matrix Estimator and a Direct Test for Heteroskedasticity," Econometrica, Econometric Society, vol. 48(4), pages 817-38, May.
    10. Peter Johnson & Simon Parker, 1996. "Spatial Variations in the Determinants and Effects of Firm Births and Deaths," Regional Studies, Taylor & Francis Journals, vol. 30(7), pages 679-688.
    11. Granger, C. W. J. & Newbold, P., 1974. "Spurious regressions in econometrics," Journal of Econometrics, Elsevier, vol. 2(2), pages 111-120, July.
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