Firm Entry, Firm Exit, and Urban‐Biased Growth

We introduce a taxonomy that classifies industries using three criteria: net growth in thenumber of firms; the interrelationship between firm entry and firm exit; and the degree of urbanbiasin industry growth. We show that in 9 of 15 two-digit NAICS industries investigated, thereis evidence of urban bias consistent with a comparative advantage to starting a business in urbanmarkets. The urban advantage is due primarily to faster firm entry rates. Urban and rural firmshave similar firm exit rates, consistent with a presumption that there are equal expected profitrates conditional on entry across markets. Urban areas grow faster because they induce fasterfirm entry and not because urban firms are more likely to succeed.[...]