Firm Entry, Firm Exit, and Urban‐Biased Growth

We introduce a taxonomy that classifies industries using three criteria: net growth in the number of firms; the interrelationship between firm entry and firm exit; and the degree of urban bias in industry growth. We show that in 9 of 15 two-digit NAICS industries investigated, there is evidence of urban bias consistent with a comparative advantage to starting a business in urban markets. The urban advantage is due primarily to faster firm entry rates. Urban and rural firms have similar firm exit rates, consistent with a presumption that there are equal expected profit rates conditional on entry across markets. Urban areas grow faster because they induce faster firm entry and not because urban firms are more likely to succeed.