Implications for Regions and Industries
Edited by Charlie Karlsson, Andreas P. Cornett and Tina Wallin
Chapter 8: Location, location, location: place-specific human capital, rural firm entry and firm survival
We review the literature on rural firm entry and survival, and summarize key findings from our own recent work on this topic. Our research suggests the location choices of entrepreneurs are tied to an unobservable match between the entrepreneur and the location of the venture that enhances firm productivity and increases survival in both rural and urban places. We conjecture that entrepreneurs have place-specific human capital that affects firm entry and plays a role in firm exit and succession. In thin, rural markets, the probability of finding another entrepreneur with the same location-specific skillset to purchase the firm is low, and there are fewer alternative uses for the assets in the market. As a result, rural firms face a type of asset fixity problem which reduces exit, even as market condition lower profitability. This implies a role for place-based economic development and for rural businesses transition policies.
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