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FINANCIAL STARTUP CAPITAL AND INDUSTRY

Several previous studies find that asset levels play an important role in

determining who enters into or exits from self-employment.22 Furthermore, small

business outcomes vary across industries. Certain industries have higher business

turnover rates than others, most notably retail and services (Robb 2000, Reynolds and

White 1997, and Humphreys and McClung 1981). Those with higher capital

requirements for entry, such as manufacturing and wholesale, typically have lower

turnover rates. Barriers of entry into specific industries can result for many reasons.

First, capital constraints can limit which industries an individual can enter due to higher

capital requirements of certain industries (Bates, 1997). In addition, industry choice may

be constrained due to a lack of relevant skills, discrimination, or differences in

preferences (Boden, 1996, Boden and Nucci 2000, and Robb 2000). Cooper et al. (1994)

shows that industry-specific knowledge contributes to higher survival prospects. The

distributions of these variables may be correlated with the family background variables

implying that their omission from the regressions may bias the coefficient estimates on

the family background variables.

To further explore this concern, we estimate a second set of small business

outcome regressions that include dummy variables for different levels of startup capital

and major industry categories in addition to the independent variables included in the

previous equations. The CBO contains categorical information on "the total amount of

capital required to start/acquire the business" (U.S. Department of Commerce 1997, p. C-

( S c h a f e r a n d O l s e n 1 9 9 8 ) . 2 2 See Evans and Jovanovic (1989), Evans and Leighton (1989), Bates (1990a), Holtz-Eakin, Joulfaian, and Rosen (1994a,1994b), Fairlie (1999), Dunn and Holtz-Eakin (2000), and Blanchflower and Oswald (1998).

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