The Economics of Rural Entrepreneurship in Texas

The Numbers of Rural America 

In the face of technological change, rural counties in the United States have fallen behind. Poverty rates are higher in rural areas, job growth is slower, disability rates are higher and the opioid crisis has disproportionately affected rural areas (PBS). As the forces of economies of agglomeration increasingly attract workers to urban and suburban regions, the socioeconomic decline has been accompanied by a demographic transition. While urban counties have grown at approximately 13% since 2000, rural counties have lagged behind with half of them now having fewer residents than they did in 2000, and many counties experiencing significant losses in their prime-age population (Rural Health Web). 

Approximately 31 percent of rural counties experience concentrated poverty, where at least one fifth of the population in the region live in poverty––a share significantly higher than urban and suburban populations (Pew Research Center). Moreover, only 19 percent of the population in rural counties hold at least a bachelor’s degree or more––while 33 percent of urban workers possess at least a college degree. These national trends are showcased in Texas. Rural counties in Texas have lagged behind the state average on a range of indicators such as unemployment, wages, uninsurance, maternal deaths, and school proficiency (Report For The Future of Rural Texas). 

Rural Entrepreneurship: One Possible Solution 

What can be done to improve the socioeconomic reality of rural America and Texas in particular? While there have been countless attempts to “revive” declining regions, as Nobel Prize winning economist, Paul Krugman recently stated, “it’s difficult to find any convincing success stories.”(New York Times). One of the few development strategies that has “consistently [worked] in these communities” is small business entrepreneurship (Center for Rural Affairs). Specifically during the 1990s, 60 percent of job growth in rural regions was associated with small business development. Small business growth provides social and psychological benefits to a community; tying entrepreneurs to a place through deep bonds that help construct “sustainable communities.” The recently launched Rural Innovation Initiative by the Center of Rural Innovations (CORI) is one example of a community program that is “working to bridge the opportunity gap in rural America by helping communities build the capacity to create resilient, innovation-based jobs.” 

 Preliminary Research 

One of the problems with the existing literature is that most of it treats all rural areas as a single homogenous categorical variable, failing to account for the vast differences in outcomes for rural businesses across counties. To truly understand the picture of rural America, it is necessary to look at variation within rural counties. Ulrich-Schad (2018) found that there are in fact three rural realities, those that are “chronically poor, transitioning, and amenity-rich.” Similarly, Han and Goetz showed that counties with greater industrial diversity of industries recovered more quickly than their less diversified counterparts. When analyzing County Business Patterns (CBP) data, which provides annual estimates of the number of establishments by size and industry at the county level, it becomes clear that small business activity per capita in rural Texas counties varies significantly across counties (as visualized in the map below). 

Preliminary Findings 

What accounts for this variation across rural counties entrepreneurial success? From our initial research, we have identified some setbacks for the rural economy that may hinder the success of small businesses in rural counties in Texas: 

● Access to broadband infrastructure. One out of every four rural Texans (1.25 million) lacks access to broadband infrastructure (compared to only 2% of urban residents) (Connected Nation: Rural Broadband: A Texas Tour). This issue has recently picked up speed in the current Texas Legislature (NPR: Texas Standard) 

● Absence of easily accessible capital markets. In a poll of all Texas small business owners, “roughly 40 percent of respondents stated they had difficulty receiving the full amount of credit requested while 19 percent of respondents did not apply for credit because they doubted they would be approved” (Dallas Federal Reserve). Small businesses are more likely to receive loans from relatively young “de novo” banks than they are from larger, more established financial institutions. Lack of access to capital markets can significantly hamper rural entrepreneurial growth. 

● Access to childcare. Nationally, 58 percent of rural communities meet the definition of “child care deserts.” Over 48% of Texans live in a child care desert (Center for American Progress). Low access to childcare can stifle entrepreneurs who are trying to run a small business and take care of their family. 

● Accessible training programs. Training programs can help entrepreneurs troubleshoot their problems and grow their revenues. Complications that arise to access these important catalyst programs in rural areas include low density of businesses and residents, low quality of rural transport facilities, and lack of universal broadband access for remote training opportunities. 

Stay tuned 

In the upcoming few months, we plan on launching a 2-year research study on rural entrepreneurship, in partnership with Prof Jungfeng Jiao (UT Austin, Dept. of Community and Regional Planning), and Prof Jason Abrevaya (UT Austin, Chair of Dept. of Economics) to determine what the decisive factors are for entrepreneurial success in rural counties in Texas and provide rural policy-makers with the tools to track real-time statistics and make effective policy for entrepreneurs.