I will survive…but at what (opportunity) cost?: A spatial analysis of business survival and Jacobian externalities

Abstract

AbstractUsing insights gained from Jacobian externalities, we consider how a more diverse economic industrial base relates to business survival rates. While a low survival rate is often perceived negatively among policy‐makers, evidence suggests that business exit is part of a dynamic and robust economy. The high opportunity cost of continuing with a struggling business in a more diversified economy may ultimately sway entrepreneurs with less competitive ventures to exit leading to lower survival rates. We model average 5‐year survival rates at the county level annually from 1990 to 2012 employing a spatial panel Durbin specification. The data support the central hypothesis that more diversified economies increase the opportunity costs of operating an underperforming new business, thereby lowering survival rates.