Agglomeration Economies and Business Startups on Native American Tribal Areas

I. IntroductionRecent scholarship has demonstrated increased interest in business growth in rural regions of the United States (Isserman, Feser, and Warren, 2010; Bruce, Deskins, Hill, and Rork, 2009). Part of this interest stems from the fact that poverty rates in the United States are not uniformly distributed geographically. Fisher (2007) reports that, as a long-term phenomenon poverty rates are higher in non-metropolitan regions. Historically, some of the poorest regions of the nation have been in rural areas, such as Native American Indian reservations where poverty rates can be triple the national average (Benson, Lies, Okunde, and Wunnava, 2011).Efforts to intensify entrepreneurial start-ups in these communities have been viewed as a critical stimulus to economic development. Indeed, recent studies indicate small business formation has significant impacts on regional economies (Fritsch and Schroeter, 2011) and can be a major engine of rural economic growth (Henderson, 2006). The traditional reason for the lackluster growth in rural areas has largely been that they lack agglomeration economies. Missing in rural economies are agglomeration attributes such as ready access to productive capital inputs, an educated, skill-relevant, and experienced labor force, and an established transportation and communication infrastructure which can facilitate valuable informationsharing between businesses (Gabe, 2003, 2004; Carlino, 1980).Recent evidence suggests that agglomeration economies as traditionally defined and measured, while still important, may be playing less of a critical role in regional economic development today than it has played historically (Decker, Thompson, and Wohar, 2009; Domazlicky and Weber, 2006; Latzko, 2002). Indeed, recent evidence points to an increasing number of successful small businesses located in poorer, rural regions of the United States where traditional measures suggest limited agglomeration economies. Clement (2006a, 2006b), highlighting largely anecdotal evidence, identified several instances of successful small enterprises on Native American Indian reservations of the Great Plains.One reason suggested for this recent development has been the growth of information technology (IT), such as the expansion of broadband infrastructure, growing availability of relatively inexpensive computing equipment, and, of particular importance to our study, the diffusion of IT labor skills in many industries. IT involves the management of technology and spans a wide variety of areas that include computer software, infonnation systems, computer hardware, programming languages, web-based applications and data management constructs. The cost of computing technology has fallen dramatically in the last 30 years. Software applications, which historically had been highly specialized assets requiring substantial computer programming skills, has developed in such a way as to be more generally accessible and applicable to a variety of business applications. As a result, IT and IT-related labor skill sets have a much larger presence in many industries today than it had historically and those with IT skills have increased greatly.The implications for local business development of the diffusion of IT-related skills in industry as well as IT-related infrastructure, such as broadband access are subject to debate. One argument advanced is that IT reduces localization economies (Quah, 2001). Much of this debate emphasizes IT infrastructure. With the expansion of communication networks that facilitate information and data transfers, localization becomes less important. Another argument suggests that with the diffusion of IT-related labor skill sets in certain industries, concentration of such skills would tend to follow the concentration patterns of those IT-intensive industries. To the extent that local entrepreneurs can tap the skills of those trained in IT and employed locally in these IT-intensive firms, either formally or informally through local community engagement (such as churches, school boards, and other civic organizations), then such expertise might facilitate business venture growth. …