Data on new business starts from the North Carolina Secretary of State’s Office (SOS) helps to better predict local economic activity. Research shows a generally positive relationship between business formation and county GDP growth (the broadest measure of economic activity) as well as job creation, though the degree varies by the size of the county and the employment sector.

Key Findings:

1. How Business Formation Impacts GDP Growth:

• The impact of business starts is larger in highly populated counties, with each additional 10 percentage points in the growth rate of new businesses in a larger county resulting in an additional 0.11 percentage points in GDP growth in the same year. For a county with an expected 2% GDP growth, this would raise growth to 2.11%, a 5.5% increase in the growth rate.
• In less populated counties, the effect of business starts is smaller and more complex. A 10 percentage point increase in both statewide and county-level new business growth rates results in a 0.07 percentage point increase in GDP growth, a meaningful boost given the slower growth many of these counties have experienced in recent years.

2. How Business Formation Impacts Employment Growth:

• Goods-producing sector (e.g., manufacturing, construction, etc.): New businesses lead to more jobs, but with a lag. It takes about three-quarters of the year to see the effect of an increase in new business starts in the employment data. A 10 percentage point increase in the growth rate of new businesses results in a 0.02 percentage point increase in the growth rate of jobs in the goods-producing sector.
• Service sector (e.g., information technology, healthcare, etc.): The impact is quicker and slightly larger. A 10 percentage point increase in the growth rate of new businesses results in a 0.03 percentage point increase in the growth rate of jobs by the next quarter.

Overall, trends in new business starts help predict short-term job changes and broader economic growth across different counties in North Carolina. Understanding the relationship between new business starts on state economic growth is crucial because it helps policymakers make better-informed decisions that foster economic development and job creation.

This research was done in partnership with the North Carolina Collaboratory and the North Carolina Secretary of State to explore the development of the North Carolina Center for Advanced Economic Forecasting (NCCAEF). The center aims to forecast economic growth across all 100 counties in North Carolina and identify the key factors driving this growth. Access to this data allowed the Kenan Institute to produce innovative findings on the drivers of local economic activity.

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