Non-employer establishments and economic development in counties: evidence from cross-border neighbor county-pairs in th
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Non-employer establishments and economic development in counties: evidence from cross-border neighbor county-pairs in the US Pankaj C. Patel
&
Srikant Devaraj
Accepted: 25 August 2020 # Springer Science+Business Media, LLC, part of Springer Nature 2020
Abstract The relationship between entrepreneurship and economic development is studied widely in academic research and is of interest to policymakers. A majority of past studies have focused on the association between country-level entrepreneurship and gross domestic product (GDP), though more recently, studies have also focused on associations between state-, region-, and city-level entrepreneurship and economic development. Complementing prior studies at these different geographic levels, in this study, we use 774 neighbor county pairs across state borders and the recently released data on county GDP from 2001 to 2017 (18,652 country-year observations) in the US. We find the lag of log of non-employer establishments in the county Granger-cause log of real county GDP. Our results, controlling for neighbor-county-pair timetrends, show that for a 1% increase in non-employer establishments, there is a small but positive effect on GDP (0.049%). Estimates across subsamples of major industry sectors further support the positive association, especially in construction, transportation and Pankaj C. Patel contributed equally to this work. P. C. Patel (*) Villanova School of Business, Villanova University, 800 E. Lancaster Avenue, Villanova, PA 19085, USA e-mail: [email protected] S. Devaraj Center for Business and Economic Research, Miller College of Business, Ball State University, 2000 W. University Ave, Muncie, IN 47306, USA e-mail: [email protected]
warehousing, and most service sectors. Robustness checks using vector autoregression (three lags), distributed lag models (up to five lags), and macroeconomic cyclical patterns under bivariate panel correlations for non-employer establishments were consistent with the main results. For a 1% increase in small firms with 1–4 employees, the increase in GDP is 0.13%. The countylevel inferences add further to the growing body of studies focused on the within-country entrepreneurship and economic development. Keywords Non-employer establishments . Economic development . County . GDP . Regionalentrepreneurship JEL classifications L26 . O47 . R11
1 Introduction For policymakers around the world, a perennial question of interest is whether entrepreneurship is a source of economic development. Most policymakers consider this question a foregone conclusion and continue to devise a variety of policies to promote entrepreneurship in the hope that it will prime economic development. Robust to a wide range of economic development measures, academic researchers also concur with its role in driving economic development for developed economies (Acs et al. 2018; Acs and Varga 2005; Nightingale and Coad 2014); however, for developing economies, the evidence remains mixed (Van Stel et al. 2005). The studies to date have focused on c
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