The concept of "economic gardening"—supporting locally owned businesses over nonlocally owned businesses and small businesses over large ones—has gained traction as a means of economic development since the 1980s. However, there is no definitive evidence for or against this pro-local business view. Therefore, I am using a rich U.S. county-level data set to obtain a statistical characterization of the relationship between local-based entrepreneurship and county economic performance for the period 2000–2009. I investigate the importance of the size of locally based businesses relative to all businesses in a county measured by the share of employment by local businesses in total employment. I also disaggregate employment by local businesses based on the establishment size. My results provide evidence that local entrepreneurship matters for local economic performance and smaller local businesses are more important than larger local businesses for local economic performance.
JEL Classification: O18, R11
Key words: local ownership, small business, firm size, income growth, employment growth, poverty, rural
I am indebted to Chris Cunningham, Michael Fritsch, Stephan Goetz, Todd Greene, Karen Leone de Nie, and Urvi Neelakantan for helpful comments. An earlier version of this paper was presented at the 58th Annual North American Regional Science Association Meetings, held in Miami, Florida, in November 2011. The views expressed here are the author's and not necessarily those of the Federal Reserve Bank of Atlanta or the Federal Reserve System. Any remaining errors are the author's responsibility.
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