Does Rural Entrepreneurship Pay?

Rural entrepreneurship can help stimulate local economies by creating local jobs and providing goods and services that improve the quality of life of nearby residents. However, as Reynolds et al. (1995) note, rural entrepreneurs can face difficulties through lack of sufficient capital, infrastructure, and access to educated labor. These hardships often result in lower firm entry rates when compared to urban areas and businesses characterized as low-income and low-growth. This leads to the common notion that rural entrepreneurship is necessity driven—entrepreneurs create rural businesses in order to remain in, or relocate to, a rural location. Recent research, however, has shown that the factors that affect rural business location also increase the likelihood that business will survive, suggesting that rural entrepreneurs possess location-specific capital that increases the probability of becoming an entrepreneur and offers greater returns relative to being a wage earner. In order to fully analyze and understand the location choices of entrepreneurs, we analyze survey results from 4,448 Iowa State University alumni who graduated between 1982 and 2007. Furthermore, we assess returns to location-specific human capital by location and the relative earnings of rural and urban wage earners and entrepreneurs.