Location Matters

 If you’ve bought a home, condo, or any type of real estate, you’ve encountered  those magic words describing the desirability of a piece of property: “Location, location, location.” Simply put, location matters.

 The importance and impact of location on economic development and business growth was recently brought into focus in a new study from the Office of Advocacy, New Business Clustering in U.S. Counties, 1990-2006.   The study found that entrepreneurial activity tends to concentrate geographically and flow across county lines. Put another way, local economic development agencies shouldn’t think of neighboring communities as the competition but rather as teammates, and should align their growth strategies to complement each other.

 High profile counties like Los Angeles, Cook (Chicago), and New York had the highest total levels of entrepreneurial activity; but firm births aren’t just a big city thing. Nearly every county had at least one firm birth from 1990 to 2006. And counties in our nation’s interior and Northwest—in states like Colorado, Utah, and Washington—tended to have the highest firm birth rates and levels of entrepreneurial activity per capita.

 Retail trade had the highest rate of new firm births, followed by industries specific to the local market. High technology was the only industry sector specifically favored in counties with access to an educated workforce and a local R&D structure.

 The study found that new startup rates in high technology are tied to startup rates in business services. This is an indication that business service firms may form in response to high tech entrepreneurial activity.

 The study also found that higher unemployment was correlated with higher firm birth rates except in the business services industries—an indication that business service firms depend on the success of other firms.

 There’s something here for data diggers too—especially if you’re interested in the performance of individual counties. At the end of the report, you’ll find county-level maps that show new-firm birth rates and county-by-county cluster patterns across the United States. The noneconomist may need some tools to access the underlying meaning—start with the explanation on p. 10 of the report, and cross-reference with county boundaries online.

As Acting Chief Counsel for Advocacy Susan M. Walthall commented upon the release of the report “The big question is always how and where new businesses are most likely to grow. This research provides some important clues to the relationships between business startups and various underlying factors in industries and across counties and states in the United States.”

—Patrick Morris and Kathryn Tobias

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