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We test whether commonly used measures of agglomeration economies encourage new firm entry in both urban and rural markets. Using new firm location decisions in Iowa and North Carolina, we find that measured agglomeration economies increase the probability of new firm entry in both urban and rural areas. Firms are more likely to locate in markets with an existing cluster of firms in the same industry, with greater concentrations of upstream suppliers or downstream customers, and with a larger proportion of college-educated workers in the local labor supply. Firms are less likely to enter markets with no incumbent firms in the sector or where production is concentrated in relatively few sectors. The same factors encourage both stand-alone start-ups and establishments built by multiplant firms. Commuting decisions exhibit the same pattern as new firm entry with workers commuting from low to high agglomeration markets. Because agglomeration economies are important for rural firm entry also, policies encouraging new firm entry should focus on relatively few job centers rather than encouraging new firm entry in every small town.
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Wallace Huffman continued the tradition of research on Midwest rural labor markets at Iowa State University that was begun in the 1930s by his advisers T.W. Schultz and D. Gale Johnson. We review the lessons learned from this research about the wisdom of policies aimed at retaining population in rural areas in the face of market forces and technological changes that create incentives to migrate to urban areas. Professor Huffman's teaching and lessons learned from the Iowa State Human Resources Workshop continues to shape recent research on the roles of agglomeration economies, information technologies, and returns to human capital on the strength of rural labor markets and policies regarding rural economic development.
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- Journal Article (3)
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- English (2)