Skip to main content

Determinants of growth in non-farm proprietor densities in the US, 1990–2000

Abstract

The number of non-farm proprietorships in the US has expanded significantly in past decades, but this expansion has not occurred evenly over space. Regression analysis correcting for spatial autocorrelation reveals that proprietors respond rationally to economic incentives. Parameter estimates for variables measuring collateral, age, ethnic mix, government policy, female labor force participation, and natural amenities, each have the expected signs. A few options are available to policymakers for influencing growth in self-employment densities over time.

This is a preview of subscription content, access via your institution.

Fig. 1
Fig. 2
Fig. 3

Notes

  1. 1.

    The data are from the Regional Economic Information System, Bureau of Economic Analysis, US Department of Commerce, Washington, DC; ordering information for the compact disc is available at: http://www.bea.gov/bea/regional/docs/cd.asp. Nation-wide (rural and urban areas), the number of non-farm proprietorships increased from 12.3 to 27.8 million, with the share of proprietors in all jobs nationally rising by more than 50%, from 10.5% to 15.4%. In this study, “rural” and “non-metro” are used interchangeably, as are the terms proprietorship and self-employed. According to the Current Population Survey (2004 March Supplement), the proprietors work in these industries (ranked by order of importance): services, construction, retail, FIRE, manufacturing, transportation and public utilities, wholesale, and information (Low et al. 2005). Given the data limitations, we are largely unable to examine differences across scales of proprietorship operations, and this is one shortcoming of the analysis; in terms of sector detail, we control for construction, services, retail trade, and high-tech employment, and assume that these operate as intercept rather than slope shifters.

  2. 2.

    In particular, the degree of risk acceptance and creativeness or innovativeness likely distinguishes true entrepreneurs from the self-employed, and so the analogy between the two types of individuals is not without problems. We draw on the entrepreneurship literature to generate maintained hypotheses for variables to include in the regression.

  3. 3.

    This assumption may not fully explain the decisions of rural people. They may be willing to give up some level of income (wealth) to live in rural areas. In a spatial world, income maximizing individuals would simply move out of rural areas, but many choose not to. Researchers have suggested that because of lower opportunity costs, rural business owners are willing to accept lower rates of return. This possibility is embedded in our model as shift factor τ.

  4. 4.

    We are grateful to an anonymous reviewer for this point.

  5. 5.

    To compare our results with those of previous studies, we also included shares of different ethnic groups in a separate regression. This is discussed in the results section.

  6. 6.

    We thank a reviewer for this point.

  7. 7.

    Again, we thank a reviewer for pointing out the significance of government policies in our study and directing us on where to find measures to incorporate in the empirical analysis.

  8. 8.

    Although most data are from publicly accessible sources, we will make the data set used in this study available for anyone who wishes to replicate or extend our results.

  9. 9.

    We use GeoDa software (available at www.geoda.uiuc.edu) for LISA and diagnostic (robust LM) tests and Lesage’s (1999) Spatial Econometrics Toolbox for Matlab (available at http://www.business.txstate.edu/users/jl47) spatial model estimation.

  10. 10.

    We are grateful to an anonymous reviewer for this point.

  11. 11.

    In a separate regression (not reported here), we also included the percent of the population that is Asian, Hispanic and African-American. Coefficient estimates were positive in each case, and statistically significant at the 5% level for Hispanics and at the 10% level for the other two groups (in a one-tailed test only); the other coefficient estimates were robust to this specification change.

  12. 12.

    In a separate regression, we re-estimated the model for rural areas (rural–urban continuum codes 4–9) only. The results are remarkably robust in this case; the only exceptions are the following variables, which no longer differ statistically from zero when only the 2,339 rural counties are used: female labor force participation and the ARC dummy variable.

  13. 13.

    More research on the effectiveness of alternative entrepreneurship or proprietorship promotion programs delivered through universities as a substitute for time-consuming experience of the potentially self-employed, is warranted.

References

  1. Alesina, A., Baqir, R., & Easterly, W. (1999). Public goods and ethnic divisions. Quarterly Journal of Economics, 114, 1243–1284.

    Article  Google Scholar 

  2. Alesina, A., & La Ferrara, E. (2000). Participation in heterogeneous communities. Quarterly Journal of Economics, 115, 847–904.

    Article  Google Scholar 

  3. Anselin, L. (1988). Spatial econometrics: Methods and models. Dordrecht: Kluwer Academic Publishers.

    Google Scholar 

  4. Anselin, L. (1995). Local indicators of spatial association–LISA. Geographical Analysis, 27, 93–115.

    Article  Google Scholar 

  5. Anselin, L. (2000). Computing environments for spatial data analysis. Journal of Geographical Systems, 2, 201–220.

    Article  Google Scholar 

  6. Anselin, L. (2004). GeoDa TM 0.9.5-i Release Notes, Spatial analysis laboratory, University of Illinois, Urbana-Champaign, from http://sal.agecon.uiuc.edu/stuff_main.php#tutorials

  7. Anselin, L., Bera, A. K., Florax, R., & Yoon, M. J. (1996). Simple diagnostic tests for spatial dependence. Regional Science and Urban Economics, 26, 77–104.

    Article  Google Scholar 

  8. Armington, C., & Acs, Z. (2002). The determinants of regional variation in new firm formation. Regional Studies, 36, 33–45.

    Article  Google Scholar 

  9. Audretsch, D. B., & Fritsch, M. (1994). The geography of firm births in Germany. Regional Studies, 28, 359–365.

    Article  Google Scholar 

  10. Bartik, T. (1989). Small business start-ups in the United States: Estimates of the effects of characteristics of states. Southern Economic Journal, 55, 1004–1018.

    Article  Google Scholar 

  11. Bates, T. (1993). Theories of entrepreneurship. In R. D. Bingham & R. Mier (Eds.), Theories of local economic development. Newbury Park: Sage Press.

    Google Scholar 

  12. Bates, T., & Dunham, C. (1992). Facilitating upward mobility through small business ownership. In G. Peterson & W. Vroman (Eds.), Urban labor markets and individual opportunity. Washington: Urban Institute Press.

    Google Scholar 

  13. Beyers, W. B. (1996). Trends in producer services growth in the rural heartland. Economic Forces Shaping the Rural Heartland, Federal Research Bank of Kansas City Kansas City, MO, (pp. 39–60).

  14. Blau, D. M. (1987). A time-series analysis of self-employment in the United States. Journal of Political Economy, 95, 445–67.

    Article  Google Scholar 

  15. Borjas, G. J. (1986). The self-employment experience of immigrants. Journal of Human Resources, 21, 485–506.

    Article  Google Scholar 

  16. Bradford, W. D., & Osborne, A. E. (1976). The entrepreneurship decision and black economic development. The American Economic Review, 66, 316–319.

    Google Scholar 

  17. Bregger, J. E. (1996). Measuring self-employment in the United States. Monthly Labor Review, 119, 3–9.

    Google Scholar 

  18. Clark, K., Drinkwater, S., & Leslie, D. (1998). Ethnicity and self-employment in Britain 1973–95. Applied Economic Letters, 5, 631–634.

    Article  Google Scholar 

  19. Cowling, M., & Mitchell, P. (1997). The evolution of UK self-employment: A study of government policy and the role of the macroeconomy, Manchester School, LXV (September), 427–424.

  20. Dunne, T., Roberts, M. J., & Samuelson, L. (1989). The growth and failure of U.S. manufacturing plants. The Quarterly Journal of Economics, 104, 671–698.

    Article  Google Scholar 

  21. Dunne, P., & Hughes, A. (1994). Age, size, growth and survival: UK companies in the 1980s. The Journal of Industrial Economics, 42, 115–140.

    Article  Google Scholar 

  22. Easterly, W., & Levine, R. (1997). Africa’s growth tragedy: Policies and ethnic divisions. Quarterly Journal of Economics, 112, 1203–1250.

    Article  Google Scholar 

  23. Evans, D. S. (1987a). Tests of alternative theories of firm growth. The Journal of Political Economy, 95, 657–674.

    Article  Google Scholar 

  24. Evans, D. S. (1987b). The relationship between firm growth, size, and age: Estimates for 100 manufacturing industries. The Journal of Industrial Economics, 35, 567–581.

    Article  Google Scholar 

  25. Evans, D. S., & Leighton, L. S. (1989). Some empirical aspects of entrepreneurship. The American Economic Review, 79, 519–535.

    Google Scholar 

  26. Evans, D. S., & Jovanovic, B. (1989). An estimated model of entrepreneurial choice under liquidity constraints. The Journal of Political Economy, 97, 808–827.

    Article  Google Scholar 

  27. Florida, R. (2002). The rise of the creative class. New York: Basic Books.

    Google Scholar 

  28. Fölster, S. (2002). Do lower taxes stimulate self-employment? Small Business Economics, 19, 135–145.

    Article  Google Scholar 

  29. Goetz, S. J., & Debertin, D. L. (1996). Rural population decline in the 1980s: Impacts of farm structure and federal farm programs. American Journal of Agricultural Economics, 78, 517–529.

    Article  Google Scholar 

  30. Goetz, S. J., & Freshwater, D. (2001). State-level determinants of entrepreneurship and a preliminary measure of entrepreneurial climate. Economic Development Quarterly, 15, 58–70.

    Article  Google Scholar 

  31. Guesnier, B. (1994). Regional variations in new firm formation in France. Regional Studies, 28, 347–358.

    Article  Google Scholar 

  32. Hamilton, B. H. (2000). Does entrepreneurship pay? An empirical analysis of the returns to self-employment. Journal of Political Economy, 108, 604–631.

    Article  Google Scholar 

  33. Hart, M., & Gudgin, G. (1994). Spatial variations in new firm formation in the Republic of Ireland, 1980–1990. Regional Studies, 28, 367–380.

    Article  Google Scholar 

  34. Johnson, T.G. (2000). The rural economy in a new century. In Beyond agriculture: New policies for rural America. Center for the Study of Rural America, (Federal Reserve Bank of Kansas City, Conference Proceedings, pp. 7–20).

  35. Jovanovic, B. (1982). Selection and the evolution of industry. Econometrica, 50, 649–670.

    Article  Google Scholar 

  36. Köllinger, P., & Minniti, M. (2006). Not for lack of trying: American entrepreneurship in black and white. Small Business Economics, 27(1), 59–79.

    Article  Google Scholar 

  37. LeSage, J.P. (1999). Spatial econometrics. Available at http://www.rri.wvu.edu/WebBook/LeSage/spatial/spatial.html

  38. Lin, Z., Picot, G., & Compton, J. (2000). The entry and exit dynamics of self-employment in Canada. Small Business Economics, 15, 105–125.

    Article  Google Scholar 

  39. Low, S., Henderson, J., & Weiler, S. (2005). Gauging a region’s entrepreneurial potential. Economic Review, Third Quarter, 61–89.

  40. Malecki, E. J. (1994). Entrepreneurship in regional and local development. International Regional Science Review, 16, 119–153.

    Article  Google Scholar 

  41. McGranahan, D. A. (1999). Natural amenities drive rural population change. Washington DC: U.S. Department of Agriculture, FRED, ERS. Agricultural Economic Report 781.

  42. McGranahan, D. A., & Beale, C. L. (2002). Understanding rural population loss. Rural America, 17(Winter), 2–11.

    Google Scholar 

  43. Mar, D. (2005). Individual characteristics vs. city structural characteristics: Explaining self-employment differences among Chinese, Japanese, and Filipinos in the United States. Journal of Socio-Economics, 34, 341–359.

    Article  Google Scholar 

  44. Minniti, M., & Nardone, C. (2006). Being in someone else’s shoes: The role of gender in nascent entrepreneurship. Small Business Economics, 28(2–3), 223–238.

    Google Scholar 

  45. Pace, R. K., & Barry, R. (1997). Quick computation of spatial autoregressive estimators. Geograpical Analysis, 29, 232–47.

    Article  Google Scholar 

  46. Parker, S. C. (1996). A time series model of self-employment under uncertainty. Economica, 63, 459–75.

    Article  Google Scholar 

  47. Rey, S. J., & Montouri, B. D. (1999). US regional income convergence: A spatial econometric perspective. Regional Studies, 33, 143–156.

    Article  Google Scholar 

  48. Reynolds, P. (1994). Autonomous firm dynamics and economic growth in the United States, 1986–1990. Regional Studies, 28, 429–42.

    Article  Google Scholar 

  49. Ritsilä, J., & Tervo, H. (2002). Effects of unemployment on new firm formation: Micro-level panel data evidence from Finland. Small Business Economics, 19, 31–40.

    Article  Google Scholar 

  50. Robson, M. T. (1998a). Self-employment in the UK regions. Applied Economics, 30, 313–22.

    Article  Google Scholar 

  51. Robson, M. T. (1998b). The rise in self-employment amongst UK males. Small Business Economics, 10, 199–212.

    Article  Google Scholar 

  52. Rupasingha A., Goetz, S. J., & Freshwater, D. (2006). The production of social capital in U.S. counties. Journal of Socio-Economics, 35, 83–101.

    Google Scholar 

  53. Strotmann, H. (2007). Entrepreneurial survival. Small Business Economics, 28, 87–104.

    Article  Google Scholar 

  54. Tirole, J. (1988). The theory of industrial organization. Cambridge, MA: The Massachusetts Institute of Technology.

    Google Scholar 

  55. Uusitalo, R. (2001). Homo entreprenaurus? Applied Economics, 33, 1631–1638.

    Article  Google Scholar 

  56. van Oort, F. G., & Atzema, O. A. L. C. (2004). On the conceptualization of agglomeration economies: The case of new firm formation in the Dutch ICT sector. Annals of Regional Science, 38, 263–290.

    Article  Google Scholar 

Download references

Acknowledgements

Senior authorship is shared equally. The authors gratefully acknowledge the valuable comments of the editor and anonymous reviewers.

Author information

Affiliations

Authors

Corresponding author

Correspondence to Anil Rupasingha.

Rights and permissions

Reprints and Permissions

About this article

Cite this article

Goetz, S.J., Rupasingha, A. Determinants of growth in non-farm proprietor densities in the US, 1990–2000. Small Bus Econ 32, 425–438 (2009). https://doi.org/10.1007/s11187-007-9079-5

Download citation

Keywords

  • County-level
  • Non-farm proprietor employment density
  • Spatial effects

JEL Classifications

  • L26
  • J24