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Creative Destruction and the Reallocation of Capital in Rural and Urban Areas

Author

Listed:
  • Jason Brown
  • Dayton Lambert

Abstract

We test the implications of Schumpeter’s theory of creative destruction on food manufacturer births and deaths using a dynamic, unobserved effects count model with correlated random effects. We find evidence of a creative destruction process via the interaction of previous firm birth and death, which is correlated with higher rates of contemporaneous firm birth and death in a given location. Results support Marshall’s notion of “something is in the air,” as evidenced by the strong correlation between sources of unobserved heterogeneity in the birth and death processes. Consistent with overall declines in firm birth and death across the United States between 2001 and 2019, we find evidence of convergence in birth and death rates across counties. Our results provide insights into capital reallocation across locations. The convergence rate is higher in urban versus rural areas, which have become more static over time.

Suggested Citation

  • Jason Brown & Dayton Lambert, 2024. "Creative Destruction and the Reallocation of Capital in Rural and Urban Areas," Research Working Paper RWP 24-11, Federal Reserve Bank of Kansas City.
    • Handle: RePEc:fip:fedkrw:99035
    DOI: 10.18651/RWP2024-11
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    References listed on IDEAS

    as
    1. Hsiao,Cheng, 2022. "Analysis of Panel Data," Cambridge Books, Cambridge University Press, number 9781009060752, January.
    2. Hsiao,Cheng, 2022. "Analysis of Panel Data," Cambridge Books, Cambridge University Press, number 9781316512104, January.
    3. Jeffrey M Wooldridge, 2010. "Econometric Analysis of Cross Section and Panel Data," MIT Press Books, The MIT Press, edition 2, volume 1, number 0262232588, December.
    4. F. Larry Leistritz, 1992. "Agribusiness firms: Location determinants and economic contribution," Agribusiness, John Wiley & Sons, Ltd., vol. 8(4), pages 273-286.
    5. Elisabet Viladecans-Marsal, 2004. "Agglomeration economies and industrial location: city-level evidence," Journal of Economic Geography, Oxford University Press, vol. 4(5), pages 565-582, November.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    birth rates; death rates; creative destruction;
    All these keywords.

    JEL classification:

    • C35 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Discrete Regression and Qualitative Choice Models; Discrete Regressors; Proportions
    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • R12 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Size and Spatial Distributions of Regional Economic Activity; Interregional Trade (economic geography)
    • R30 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - General

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