Business dynamism and regional growth across the business cycle: Implications for recovery from the COVID-19 crisis

This paper sheds light on regional recovery prospects from the coronavirus disease 2019 (COVID-19) crisis by examining the link between gross rates of establishment openings and closures and local economic growth spanning the 2001 recession and the 2007-2009 global financial crisis (GFC). Consistent with existing literature, our results show that US counties with historically higher rates of dynamism - measured here as rates of establishment openings and closures, or churn - experience faster medium-run employment growth rates. Our novel finding relates to the time-varying effects of churn. Using a fixed-effects panel model of US counties from 1998 to 2018, we find higher pre-recession churn to be associated with larger employment losses during the GFC, and slightly faster employment gains during the subsequent recovery. High-churn counties experienced slower gains in median household incomes during both the 2001 recession and the GFC, but more rapid decreases in poverty rates during macroeconomic expansions. We conclude by identifying regions with historically low establishment churn that have suffered high employment losses during the COVID-19 crisis and may be in need of support to aid recovery.