Place-Based Industrial Policy and the Geographical Distribution of Entrepreneurship in the United States

Place-Based Industrial Policy and the Geographical Distribution of Entrepreneurship in the United States

How targeted legislative efforts are shaping regional economic growth

In recent years, place-based industrial policy has emerged as a legislative strategy to promote growth in specific industries within selected regions. With a total spending of $3.8 trillion, these policies aim to address the unique needs of local communities and leverage their talent, networks, and institutions. From the American Rescue Plan to the Infrastructure and Jobs Act, these bills are designed to stimulate entrepreneurship and drive economic development. This article explores the impact of place-based industrial policy on the geographical distribution of entrepreneurship in the United States.

The Role of State-Funded Programs and Sector-Specific Policies

State-funded programs play a crucial role in promoting regional economic growth. For example, the State Small Business Credit Initiative (SSBCI) under the American Rescue Plan provides federal funds to support small business initiatives. These funds can be used for various purposes, such as legal and financial advisory services, fostering entrepreneurship in areas of particular concern. Moreover, sector-specific policies, like the CHIPS and Science Act, aim to support industries such as semiconductors and promote innovation in targeted regions.

The West vs. East Divide in Entrepreneurship

Research on US startups reveals an interesting trend in the geographical distribution of entrepreneurship. States west of the Mississippi River, such as North Dakota, Nebraska, and California, exhibit stronger entrepreneurial vitality compared to their eastern counterparts. This divide challenges the notion that population density or state regulations alone drive entrepreneurial activity. Factors like skills acquired through experience, risk-taking culture, and community values also play a significant role.

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The Impact of Digital Revolutions on Startups

The of the personal computer and the subsequent mobility digital revolution have had a profound impact on startup activity. The growth rate of startups increased from 1.12 percent per annum during the desktop digital revolution to 4.3 percent per annum during the mobility digital revolution. The adoption of new technologies and the reshuffling of tasks following the Great Recession have contributed to this surge in startup activity.

The Role of Business Formation Statistics

Data from the Business Formation Statistics (BFS) of the U.S. Census Bureau further supports the increase in startup activity during the post-pandemic years. Business applications across various sectors have seen significant growth, with retail trade, healthcare, and social assistance, education, and professional services leading the way. Notably, states like Georgia, Florida, and Texas have experienced a surge in new business applications, while financial centers in the Northeast have lagged behind.

Mature Startups and Factors Contributing to Exits

While nascent startups have shown strong growth, mature startups face higher exit rates. Factors contributing to these exits include the pressure to rapidly expand customer bases, acquisition by larger firms, decline in labor-force participation rates, increased mortality rates of certain demographics, and resistance to immigration. Timely counseling and networking can play a crucial role in ensuring the longevity of new businesses beyond the early years.

Conclusion:

Place-based industrial policy has the potential to reshape the entrepreneurial landscape in the United States. By targeting specific industries and regions, these policies aim to foster innovation, drive economic growth, and bridge the gap between different geographical areas. However, challenges such as the east-west divide in entrepreneurship and the high exit rates of mature startups need to be addressed. By providing support, resources, and fostering a culture of risk-taking, policymakers can create an environment conducive to sustained entrepreneurial activity and economic development across the country.

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