Churning in rural and urban retail markets

Abstract

Using data on the universe of taxable retail sales, retail firm start-ups, and retail firm exits in Iowa from 1992 through 2011, we test whether patterns of retail firm entry and exit are consistent with churning. Consistent with churning, the same factors that increase retail sales in a local market also increase new retail firm entry and either increase or do not affect retail firm exit. Evidence suggests that there is more churning in urban than in rural markets. Similar evidence is found using a sample of national firm entry and exit into local markets. If churning increases productivity growth, then the greater churning rate in urban markets is another source of agglomeration advantages in thick markets.