Regional innovative environment and business survival: Non-parametric evidence from two U.S. sectors

The determinants of business survival are an important topic of empirical study that is crucial for the design of effective policies aimed at forming and sustaining new firms in the U.S. regions. The literature suggests a wide range of firm-, industry-, market-, and region-related factors critical for business longevity. The effects of regional characteristics on the likelihood of firm exit are the least studied. This paper contributes to the literature by exploring the relationship between the level of metropolitan innovation and survival in two U.S. high-technology sectors, computer and electronic product manufacturing, and healthcare services. Using non-parametric survival analysis, we estimate the hazard faced by companies in both sectors conditioning it on innovation and controlling for a number of geographical, industrial, regional, and firm characteristics, one at a time. The results suggest that in computer and electronic product manufacturing the effects of innovation are highly dependent on other variables. The general pattern of higher hazard faced by establishments in more innovative regions usually reverses when the focus is on large and expanding companies, as well as on all firms in more agglomerated and industrially diverse environments. In healthcare services, the effect of intervening variables is less pronounced. With some exceptions, there is a positive relationship between the level of innovation and business survival in this sector.