Growth impacts of new firm investment versus existing firms' expansion

This study uses an export base model to examine the relative importance of new and existing manufacturing establishments in stimulating employment growth in the rest of the economy. The disaggregation of the manufacturing sector into new and existing establishments extends previous export base models. In addition, the model is estimated for three county classification (metro, adjacent, and nonadjacent) to determine how the size of local markets affect the impact of the basic sector (manufacturing) on the nonbasic sector (other sectors). The results indicate the response in nonbasic employment to changes new and existing manufacturing employment was not statistically different in nonadjacent counties. In metro and adjacent counties, the size of the impact only varied slightly. These results imply that new and existing manufacturing establishments are equally capable of stimulating nonbasic employment. The model indicates nonmetro communities suffer larger leakages of economic activity relative to metro communities. This suggests nonmetro communities lack the size and diversity of markets present in metro communities to retain all local business and household purchases. The analysis also shows the economic structure of the community plays an important role in the growth of nonbasic employment. Across all county classifications, communities with larger markets and better infrastructure tend to receive more of a stimulus from the expansion of the basic sector. These communities also have stronger overall economic growth.