Publication Type
Journal Article
Version
submittedVersion
Publication Date
3-2020
Abstract
We document that growth of business earnings is mostly observed among young firmsin metro areas. Three explanations are considered: metro areas attract more-productiveentrepreneurs, and reaching the optimal size takes time due to borrowing constraints;metro areas provide better learning opportunities; and high operating costs in metroareas allow only the productive firms to survive. We use a firm-dynamics model with alocation choice to quantify the extent to which the three theories explain the data. Wefind the first two theories largely explain the high growth among metro, young firms. Ourmodel also suggests the distortion in entrepreneurs’ location choice can induce substantialwelfare loss.
Keywords
Firm Dynamics, Firm Sorting, Borrowing Constraint, Firm Learning, Firm Selection, Urban Economy
Discipline
Growth and Development | Industrial Organization
Research Areas
Applied Microeconomics
Publication
Regional Science and Urban Economics
Volume
81
First Page
1
Last Page
15
ISSN
0166-0462
Identifier
10.1016/j.regsciurbeco.2020.103521
Publisher
Elsevier
Citation
LEE, Jungho and XU, Jianhuan.
Why do businesses grow faster in urban areas than in rural areas?. (2020). Regional Science and Urban Economics. 81, 1-15.
Available at: https://ink.library.smu.edu.sg/soe_research/2027
Copyright Owner and License
Authors
Creative Commons License
This work is licensed under a Creative Commons Attribution-NonCommercial-No Derivative Works 4.0 International License.
Additional URL
https://doi.org/10.1016/j.regsciurbeco.2020.103521