How and Why Local Ownership Matters

A fascinating new working paper from the Atlanta Federal Reserve’s Anil Rupasingha examines a critical question facing community economic developers everywhere:  Does local ownership matter?  While many organizations, such as the Business Alliance for Living Local Economies (BALLE), base their very existence on the power of buying local, many communities still stake their economic futures on attracing outside businesses to relocate in their towns.  If it provides decent jobs, does it matter if a company is locally owned?  The economics literature is somewhat divided on this question as well.  Some recent literature suggest that it’s a good thing to have a diverse mix of small firms, but these studies don’t look at the question of whether companies are home-grown or based elsewhere.

Rupasingha’s study sought to assess the differences in local economic impacts between what the data geeks call resident firm (locally-owned) and non-resident firms.   His analysis yields 2 primary conclusions:  1) In general, high levels of local entrepreneurship help increase per-capita income, create local jobs, and reduce local poverty rates, and 2) Smaller local firms seem to have a more signficant positive impact than large and medium sized firms.  These effects actually appear strongest in regions with higher concentrations of the smallest firms (those that range from self-employment ventures to those with 1-9 employees). 

The study does not offer any assessments of what kinds of policies can best help generate these outcomes, but Rupasingha does recognize that recent policy directions that emphasize small business development and economic gardening are promising.  To paraphrase:  Small is beautiful and it appears to be profitable, too!!



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