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Why Do Rural Firms Live Longer?

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  • Yu, Li
  • Orazem, Peter F.
  • Jolly, Robert W.

Abstract

Rural firms have a higher survival rate than urban firms. Over the first 13 years after firm entry, the hazard rate for firm exits is persistently higher for urban firms. While differences in firm attributes explain some of the rural-urban gap in firm survival, rural firms retain a survival advantage 18.5% greater than observationally equivalent urban firms. We argue that in competitive markets, the remaining survival advantage for rural firms must be attributable to unobserved factors that must be known at the time of entry. A plausible candidate for such a factor is thinner markets for the capital of failed rural firms. The implied lower salvage value of rural firms suggests that firms sorting into rural markets must have a higher probability of success in order to leave their expected profits equal to what they could earn in an urban market.

Suggested Citation

  • Yu, Li & Orazem, Peter F. & Jolly, Robert W., 2009. "Why Do Rural Firms Live Longer?," Working Papers 54081, Iowa State University, Department of Economics.
    • Handle: RePEc:ags:genres:54081
    DOI: 10.22004/ag.econ.54081
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    Cited by:

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    More about this item

    Keywords

    Community/Rural/Urban Development; Demand and Price Analysis; Financial Economics; Industrial Organization; Labor and Human Capital; Marketing; Production Economics; Productivity Analysis; Risk and Uncertainty;
    All these keywords.

    JEL classification:

    • R00 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General - - - General

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