Why Do Rural Firms Live Longer?

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.


Issue Date:
2009-07
Publication Type:
Working or Discussion Paper
PURL Identifier:
http://purl.umn.edu/54081
Total Pages:
37
JEL Codes:
O18; L21; D92
Series Statement:
Econ Working Paper
09013




 Record created 2017-04-01, last modified 2017-08-25

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