| Interregional business failure rates have not been studied at a level of industrial variation that can provide state and local policy makers with any reliable information concerning their ability to enhance small businesses survival rates. Indeed, policy makers must be able to understand the determinants of business failure rates so that they will have some idea of which factors influence business failure rates. Without an adequate understanding of why firms fail, policy makers will be unable to design the proper economic incentives to create more and better jobs for their constituents.; This study investigates the determinants of interregional business failure rates for the total manufacturing, low-technology, and high-technology industries. Specifically, a generalized probability of net negative profit function is developed to evaluate the bankruptcy decision. Further, a variety of econometric tests are conducted using manufacturing industry data across the forty-eight contiguous states over the period 1984 to 1993. Several different model specifications are tested using the data. The results indicate that the one-way fixed effects model is more appropriate compared to other model specifications. Autocorrelation is not a problem in the data, but heteroscedasticity is.; Generally, the results suggest that the wage rate, labor growth rate, proprietorship income, personal income, new business formation, corporate income tax, outstanding debt, development assistance programs, and university R&D play a major role in influencing business failure rates for the total manufacturing sector. With respect to the results for specific industry, the wage rate, labor growth rate, proprietorship income, and personal income tend to be industry specific in explaining business failure rates for low-technology and high-technology industries. Regional variations in sales tax, highway expenditures, bank loans, university R&D, patents, and outstanding debt also play a major role. Moreover, it is interesting to note that corporate income taxes, development assistance programs, and small business loans tend to improve small business survival rates for high-technology industries while they do not for low-technology industries.; Finally, our findings suggest that policy makers can effectively use local/regional policy instruments to bring the current business failure rates to the desired level more easily within high-technology industry groups than within the total manufacturing sector and low-technology industries. |
