Number of Rural Businesses Falls

Rural counties lost businesses in the past decade, according to a new study. The trend means rural communities need to think carefully about their economic future, the study’s author says.

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The number of businesses in rural America dropped in the past decade, raising questions about possible directions for nonmetropolitan economies in the future, a study published today in the Daily Yonder shows.

The study by Roberto Gallardo, Ph.D., reveals that most types of rural counties lost businesses of all sizes from 2000 to 2013. The declines were greatest in “micro businesses.” These are establishments that have one to four employees.

Because these very small establishments account for a bigger share of businesses in rural areas than in metropolitan ones, the trend is troubling, Gallardo said.

Read Roberto Gallardo's study on rural business trends in the Daily Yonder.

Rural areas that buck the downward trend in business establishments will likely be ones that build on assets such as broadband, rural America’s tendency toward greater social cohesion and natural amenities, Gallardo said.

Gallardo grouped U.S. counties into nine categories using the Economic Research Service’s Rural Urban Continuum Codes. The codes give researchers a more nuanced view of how counties with different population sizes and proximity to larger cities are performing, he said.

While the number of business establishments grew in metropolitan counties from 2000 to 2013, the number of businesses dropped for five out of six categories of nonmetropolitan counties. The single exception was counties that are not adjacent to a metropolitan area and have an urban population of 20,000 or greater. (See the chart at the top of this article.)

Some findings in the study gave Gallardo more optimism about rural America’s economic potential.

These included social factors like the existence of more gathering places in rural areas.  Gallardo found that as the size of counties decreased, the number of “third-places” establishments increased on a per capita basis. Third-place establishments are spots where people gather – such as churches, restaurants, food stores or barber shops.

Other studies have linked the existence of these gathering places with higher median incomes and decreased poverty in rural counties. A possible explanation is that such places are an indication of “strong horizontal linkages” in communities, which affect the economy. In other words, when people have an easier time connecting and interacting with each other, that can translate into economic gains.

Gallardo also pointed to the spread of broadband as another factor in rural economic development. “Broadband can help rural areas overcome the ‘density disadvantage’ they face compared to large cities,” he said. “It can help level the playing field.”

Gallardo also said the rural areas with natural amenities should think carefully about how to use these assets for economic gains. “Studies have shown a relationship between natural amenities and economic growth,” he wrote.

Gallardo is the leader of the Mississippi State University Extension Service Intelligent Community Institute, which helps rural communities “transition to, plan for, and prosper in the digital age.” He is also a faculty member of the Extension Center for Technology Outreach.

Gallardo’s complete study is available here.

 

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