I will survive…but at what (opportunity) cost?: A spatial analysis of business survival and Jacobian externalities

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Abstract

Using insights gained from Jacobian externalities, we consider how a more diverse economic industrial base relates to business survival rates. While a low survival rate is often perceived negatively among policy-makers, evidence suggests that business exit is part of a dynamic and robust economy. The high opportunity cost of continuing with a struggling business in a more diversified economy may ultimately sway entrepreneurs with less competitive ventures to exit leading to lower survival rates. We model average 5-year survival rates at the county level annually from 1990 to 2012 employing a spatial panel Durbin specification. The data support the central hypothesis that more diversified economies increase the opportunity costs of operating an underperforming new business, thereby lowering survival rates.

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Conroy, T., & Deller, S. (2023). I will survive…but at what (opportunity) cost?: A spatial analysis of business survival and Jacobian externalities. Growth and Change, 54(2), 550–571. https://doi.org/10.1111/grow.12662

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