Thinking small and local, not big and global, may help communities ignite long-term economic growth, according to Penn State economists.
Small, locally owned businesses and start-ups tend to generate higher incomes for people in a community than big, non-local firms, which actually can depress local economies, said Stephan Goetz, professor of agricultural and regional economics at Penn State.
“Local ownership matters in important ways,” said Goetz. “Smaller, locally owned businesses, it turns out, provide higher, long-term economic growth.”
The association of small businesses with enhancing economic growth in communities, regardless of the community’s population size and density, was statistically significant, said Goetz, who serves as director of the Northeast Regional Center for Rural Development. Small local businesses are stand-alone firms with 10 to 99 employees owned by residents or businesses with headquarters in the same state.
The presence of large firms that employ more than 500 workers and that are headquartered in other states was associated with slower economic growth.
Big-box and large corporations have internal systems for services such as accounting, legal, supply and maintenance that are not necessarily based within the county or state. In addition to outsourcing services that were once provided by community businesses, non-local large companies may displace more entrepreneurial small firms. Examples of non-locally owned large companies include retail chain stores such as Wal-Mart and Best Buy, and service providers such as U.S.-based call centers for car rental agencies, banks, health care providers and telecommunications firms.