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| Title: | Why Do Rural Firms Live Longer? |
| Authors: | Yu, Li
Orazem, Peter
Jolly, Robert W. |
| Authors (Email): | Yu, Li (yuli@iastate.edu)
Orazem, Peter (pfo@iastate.edu)
Jolly, Robert W. (rjolly@iastate.edu) |
| Keywords: | Rural
urban
entry
exit
survival
sorting
salvage value |
| JEL Codes: | O18
L21
D92 |
| Issue Date: | 2009-07 |
| Series/Report no.: | Econ Working Paper
09013 |
| 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. |
| URI: | http://purl.umn.edu/54081 |
| Institution/Association: | Iowa State University>Department of Economics>Working Papers |
| Total Pages: | 37 |
| Collections: | Working Papers
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| paper_13085_09013.pdf | | 435Kb | PDF | View/Open |
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