Firm Birth and Death in U.S. Manufacturing: A Regional Adjustment Model

Attracting manufacturing investment is a frequently used rural development policy. Previous research in the location literature has informed policymakers which factors are most important for attracting new firm investment. Far less is known about the interaction of birth and death of establishments. A conceptual model of county-level investment in the U.S. manufacturing sector is developed from location theory and subsequent literature. Specifically, we test the relative importance of location factors influencing firm investment, and if these factors influence firm birth and death differently. Local factors include agglomeration due to localization, urbanization, and internal economies, market structure, labor quality, availability, and cost, market conditions, , infrastructure, and fiscal policy. This study covers the time period 2000 to 2004 for U.S. counties in the lower 48 states. Counts of establishments are from the U.S. Census Bureau’s Dynamic Firm Data Series, which links establishments across space and time. Negative binomial models containing spatially lagged endogenous variables are estimated in a regional adjustment framework to show how ceteris paribus changes in location factors affect the conditional number of establishment births and deaths in a county.