Study Shows How Local Businesses Support Meaningful Local Livelihoods

Researchers from Pennsylvania State University have demonstrated the clear connection between small, locally-owned businesses and sustainable local livelihoods and economies. The study, published in Economic Development Quarterly, examined a range of U.S. counties from 2000 to 2007, finding a strong positive correlation between the presence of small, locally-owned businesses and per capita income. Such positive correlations, the researchers found, do not extend as significantly to larger outside employers and businesses like big-box stores. The effects were found to be significant in both urban and rural areas.

Local firms tend to support other local firms, the researchers observe, contracting for services from accounting to wholesaling and marketing. Such positive feedback loops help keep money within communities and build employment and local economic development over the long term. Outside companies tend to bundle and outsource these services, sending money elsewhere and limiting the growth of local business. Moreover, the economic benefits from large companies tend to be shorter-term, providing an infusion of jobs, but often at lower wages than the local companies would provide, without directly supporting other local businesses in such substantial ways.

Stephan Goetz, director of the Northeastern Regional Center for Rural Development, co-wrote the study with David Fleming. He tells the Daily Yonder that their results indicate that communities should work harder to foster and support local businesses, rather than looking to outside companies for “economic salvation”: “Many communities try to bring in outside firms and large factories,” Goetz says. “But the lesson is that while there may be short-term employment gains with larger companies, they don’t trigger long-term economic growth like start-ups do.”

As the drumbeat grows for Oregon communities to allow more large-lot development and pave over more vital resource lands in the name of jobs, local and statewide decision makers should carefully consider the implications of this and similar research: existing and new locally-owned businesses, within downtowns and existing UGBs across the state, will directly support the long-term, meaningful economic growth and living-wage incomes Oregonians need. We should do all we can to support them, rather than continue looking toward how we give up more farmland (which is its own economic engine for the state) to development.

You can access the article abstract here, though because it is an academic journal, you may need to contact your library to read the full paper.