The shale revolution and entrepreneurship: An assessment of the relationship between energy sector expansion and small business entrepreneurship in US counties

Abstract

A vast literature documents an important role that entrepreneurs play in regional economic growth and overall regional socioeconomic wellbeing. Entrepreneurship is particularly important for economic health of rural and remote areas. The recent shale boom brought growth to many communities creating new jobs; however, it is unclear how these effects are distributed across self-employed and wage and salary segments of local economies. The resource curse literature suggests that a booming energy sector may crowd out entrepreneurship. Given the self-reinforcing nature of local self-employment and entrepreneurship in general, such a negative impact of expanding energy sector, if present, is likely to suppress future growth prospects in regions that experience the shale revolution.Using SUR and IV approaches and a differencing strategy, this paper estimates the effects of the growth in oil and gas extraction industry on self-employment growth in metropolitan and rural US counties during the 2001-2013 period. The results suggest that after three years, oil and gas sector expansion tends to crowd out self-employment. In contrast, energy sector expansion promotes wage and salary employment growth in nonmetro counties but has crowding out effects in metro counties. Overall, we find that the expanding energy sector suppresses self-employment, especially in rural communities, in line with one mechanism of the resource curse.

Boom Town Business Dynamics

“…Gilje and Taillard (2016) examine investment by public and private firms in the natural gas industry and find that publicly traded firms are more responsive to changes in investment opportunities than private firms, a finding that may be thought of as contrary to the view that new firms are key but may be supportive of our findings on greenfield establishments. Tsvetkova and Partridge (2017) document limited positive impacts to self-employment (i.e., including nonemployer self-employment) in energy boom towns in 2001-2013 using American Community Study (ACS) data, consistent with previous evidence that resource sector booms may crowd out entrepreneurial activity (Davis and Haltiwanger, 2001;Glaeser et al, 2015;Betz et al, 2015). Our data cover employer businesses, so nonemployer self-employment is outside the scope of our study.…”

“…Our data cover employer businesses, so nonemployer self-employment is outside the scope of our study. We therefore view our work as complementary to Tsvetkova and Partridge (2017) as we add the employer-business side of entrepreneurship, which likely has a stronger association with later economic growth but has somewhat different interpretations in terms of the entrepreneurial occupational choice. 8 In this respect, we add employer entrepreneurship to the list of economic outcomes that have been studied in relation to resource booms, a literature that we review next.…”

Natural Resource Dependency and Entrepreneurship: Are Nations with High Resource Rents Cursed?

“…For example, Parlee () notes that efforts to increase employment of indigenous communities in the large scale oil sands mining sector of northern Alberta (Canada) create only short‐term individual benefits and can have long‐term adverse effects that include disincentives for education and entrepreneurship. Tsvetkova and Partridge () analyse the effects of the shale revolution on entrepreneurship in urban and rural US counties. They find that even if more jobs are created in the expanding energy sector and potential self‐employed workers may prefer to accept paid jobs in this sector, there is crowding out of jobs in non‐energy sectors.…”

Are the most productive regions necessarily the most successful? Local effects of productivity growth on employment and earnings

“…Our conceptual model follows a long literature that examines regional economic outcomes pioneered by Glaeser and co-authors (Glaeser et al, 1991;Glaeser et al, 2001;Glaeser et al, 1995), which has been extended by many others including Betz et al (2015) and Tsvetkova and Partridge (2016). A key underlying feature of our research is a spatial equilibrium framework (SEM) where indirect utility V in area a and firm profits are equalized across space in equilibrium, i.e.…”

“…The industry mix variable is exogenous because it is based on national growth rates and lagged local industry employment shares. The industry mix term is also referred to as the Bartik (1991) instrument and is widely used in regional and urban research (Betz and Partridge, 2013;Partridge and Rickman, 1999;Tsvetkova and Partridge, 2016;Tsvetkova et al, 2017). The variable is calculated as follows:…”