Entrepreneurship-Centered Economic … Economic Development: An Analysis of African American Entrepreneurship in the Southern Black Belt Ralph D. Christy and Wylin DassieAuthors: Ralph

Entrepreneurship-Centered Economic Development: An Analysis of African American Entrepreneurship

in the Southern Black Belt

Ralph D. Christy and Wylin Dassie

July 2000Contractor Paper 00-10

About the Authors

Ralph D. Christy is a Professor in the Department of Agricultural, Resource and ManagerialEconomics at Cornell University. Wylin Dassie is a Research Associate with the

Interdenominational Theological Center(ITC) in Atlanta, GA. She has developed faith-basedeconomic development programs within emerging communities in the South and in Kenya (EastAfrica). Ms. Dassie has a BS degree in Agricultural Economics from Florida A&M University in

Tallahassee, FL(1994) and MSc. in Agricultural Economics from Cornell University, Ithaca,NY(1997).

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Entrepreneurship-Centered Economic Development: An Analysis of African American Entrepreneurship in the Southern Black Belt

TVA Rural Studies Program / Contractor Paper 00-10 Ralph Christy and Wylin Dassie, July 20001

Entrepreneurship-Centered Economic Development: An Analysis of AfricanAmerican Entrepreneurship in the Southern Black Belt

Section 1: IntroductionThough the U.S. economy is as strong as

it's been in three decades, the landscape ofAmerica remains marred with highconcentrations of poverty. While often mostvisible in its inner cities, this poverty affectsAmerica's less well-known areas, its “forgottenplaces,” as well. Many of the most poverty-stricken of these unfamiliar areas areconcentrated in America's hinterlands, wherepoverty has persisted for decades. Appalachia,Missouri Ozarks, the Mississippi Delta, LowerRio Grande Valley, and the Ontonagon (aremote corner of Michigan's Upper Peninsula)are among the forgotten poor rural regions ofthe United States.

One persistently poor rural region1 withhistorical and socioeconomic characteristicsreminiscent of a former colonial economy is thesouthern “Black Belt.” The southern economy,famous for its legacy of plantation agriculture,gave birth to what is currently known as the“Black Belt.” The Belt spans eleven states, over400 counties and has twice the nationalpercentage of African-American residents.Wimberly and Morris assert that,

“The South has 34 percent of the U.S.population and 41 percent of the nation'spoverty. It has 45 percent of thenonmetropolitan population and 55percent of the nonmetro poverty. Thesouthern region has 53 percent of theAfrican-American population and 57percent of the nation's African-American poverty. Finally, the Southhas 91 percent of the black populationand 95 percent of their poverty. For notonly is poverty southern andnonmetropolitan, it disproportionatelyfalls among African-Americans, thenation's largest racial minority. All ofthis is concentrated in the BlackBelt.”(Morris & Wimberly, 1992, pg.28)

African-Americans in the rural South,along with their achievements, problems,

history, and unique culture, have been largelyignored by public policy makers, academicresearchers, and mainstream American society.Thus, the challenge of persistent poverty and itsconsequences are only familiar to very fewindividuals with the power and influence toeffect needed institutional and attitudinalchange.

Compounding the problem of social,political, and economic isolation of poorAfrican-Americans in the rural South is thespatial dimension and the unique “scars” ofhistory left behind by the old slave economy.This history contributes to the challenge of theBlack Belt because

• misperceptions of policy makers andpractitioners have resulted in the belief thatrural is synonymous with agriculture. Thismisperception has led to insufficient ruraldevelopment policies.

• distinctive problems facing rural African-Americans in the South are due not only tospatial and economic disparities, but also toa history of racial discrimination. This socialphenomenon is perceived by many today asan irrelevant or “historical” problem withlittle or no bearing on current social systems.

• the “overlooked” conditions of rural African-Americans have helped transform the BlackBelt into one of America's “forgottenplaces.”

The Black Belt has a relatively high level ofpoverty, low average income, few jobopportunities, high unemployment, and a largeunskilled and uneducated population. It hastraditionally been dependent on naturalresource-based industries for economic growth.

Many factors have been identified as causesof the underdevelopment of southern rural BlackBelt counties. Among them are:

• The legacy of plantation agriculture createdby a thriving slave trade early in U.S.history. The abolition of slavery leftsouthern African-Americans “rural peasants”under the sharecropping system that



dominated the Reconstruction South (Baer& Jones, 1992).

• The history of racial discrimination andpersistent inequalities between blacks andwhites in terms of income, wealth, access tocapital, education, and other sociopoliticalfactors.

• De facto industrial policies developed tocompensate for rural communities’disadvantages, such as structural, spatial, andhuman resource problems, in vying forindustry. Costly incentives offered by thesecommunities to industry established aperpetual cycle of diversion from humancapital and indigenous development in favorof a system of “smokestack chasing.”

• The inability of African-American rural,mutual-assistance institutions, such aschurches, voluntary organizations, and othercivic institutions, to advance communities inthe marketplace. These organizations fail toboost economic growth largely because“...the economic efforts of mutual aid amongAfrican-Americans has been highlyfragmented and geared more toward sheersurvival as opposed to successfuladvancement.” (Baer & Jones, 1992, pg. 31)

Strategies to ameliorate the problems ofunderdeveloped regions in the United Stateshave varied in scope and scale. Several strategieshave been implemented with varying rates ofsuccess. The failure of some of those strategieslies both in their focus on select economicproblems while ignoring others, and in trying tofit “universal” methods to case-specific problemsof development. While this study’s goal is toassess the development challenges faced byAfrican-American business owners in thesouthern Black Belt, it aims at beingcomprehensive without claiming to have the“universal” answer to all communitydevelopment problems.

A number of studies have analyzed bothAfrican-American business ownership andAfrican-American indigenous developmentstrategies (Bates, 1973, Bearse, 1984 & 1993;Fratoe, 1993; Handy and Swinton, 1984;Woodard, 1997). However, the corpus ofliterature has primarily focused on urban areas,contributing little information for public andprivate policymakers on rural African-American-owned businesses. Bates purports that

minority business studies can be classified threeways:

1) Analyses of government programs that seekto assist and promote minority business

2) Analyses of minority business owners asindividuals and the unique traits of the firmsthey operate2

3) Analyses of the impacts of minority businesson others, i.e. clients, employees,community (Bates,1993)

Clearly, significant differences exist insocioeconomic characteristics, demographics,and other factors that affect business andcommunity development between rural andurban areas. Thus, this study attempts tocontribute to the body of literature on African-American business development from both arural and urban perspective. It makes acomparison between the two, placing anemphasis on the former. In the study, we presenta conceptual framework for entrepreneurial-centered economic development in the ruralsouthern Black Belt. While the study'sfundamental goal is to understand the roleentrepreneurship might play in facilitatingsustained economic growth in Black Beltcounties, its specific objectives are to:

1) Analyze the contribution ofentrepreneurship to the overall economicdevelopment of local communities. It doesthis through an investigation ofdemographic, socioeconomic, and smallbusiness development trends.

2) Determine the impact of socioeconomic anddemographic characteristics on the incidenceof African-American business ownership.

3) Suggest policy implications for anentrepreneurship-centered ruraldevelopment strategy.

This study posits several hypotheses aboutthe relation between human capital, economicwell-being, and entrepreneurship. Briefly stated,we suggest that African-American businessownership will increase as:

• the rate of African-American high schoolcompletion increases.

• the rate of African-American collegecompletion increases.



• the rate of African-American homeownership increases.

• the median household income of the entirecounty increases.

• the overall black population increases.

Additionally, we suggest that the locationalattributes of a community affect African-American business ownership rates in thefollowing ways:

• Counties that are considered more rural areexpected to have lower African-Americanbusiness ownership rates.

• The mere distinction between rural andurban counties will have a significant effecton the African-American businessownership rate.

This study examines the determinants ofAfrican-American business ownership, such associoeconomic and demographic characteristics,and the significant role of rural institutions incommunity development. Section 2 lays thefoundation for the study, presenting theoreticaland conceptual frameworks that provide thebasis for the analytical model of African-American business ownership in the Black Belt.Section 3 presents descriptive statistics onsocioeconomic, demographic, and businessdevelopment trends in the South. Trends insome of the variables included in the conceptualframework and the subsequent analytical modelhelp develop an important historical frameworkfor understanding the current problems facingthese rural communities. Section 4 presents themethodology and results of the study, followedby conclusions in Section 5. This last chapteralso discusses impacts of alternative policies onentrepreneurship-centered developmentstrategies and implications of recent trends inAfrican-American business ownership rates,African-American population migration back tothe rural South, and institutional links toeconomic development.

Section 2: Building a ConceptualUnderstanding of an Entrepreneurship-Centered Development Strategy

Development theories of economic growthhave largely ignored the existence of someonecalled an entrepreneur. Where they do exist,theories are somewhat fragmented. Mosttheories on entrepreneurship focus on three

main factors: individual-specific factors, wherethe characteristics of the African-Americanbusiness owner are emphasized; environmentalfactors, where the importance of access tomarkets, financing, labor force characteristics,and institutions (government, civic, legal andeconomic) are stressed; group factors, where theability to mobilize the African-Americanpopulation to facilitate institutional andattitudinal change is central to enterprisedevelopment. Examples of such changes includethe Civil Rights Movement, affirmative action,and equal opportunity employment (Ahiara,1993).

Drawing from a broad overview of growthand development theories, we formulated ananalytical model of entrepreneurship andcommunity development. This model serves as aguide to inquiries about current factorsunderlying the complex relationships ofdevelopment. This model also provides theconceptual framework for entrepreneurship-centered rural economic development. Themodel’s core elements are explained as follows.

InputsAll communities are endowed with physical

resources and levels of human and financialcapital. Classical and neoclassical theoriesexplain regional variations in growth by regionalavailability of land (physical resources), labor(human capital) and financial capital. Thephysical resources and capital (land and financialcapital) available to a community are keyelements in economic growth theory. Whilehuman capital does not, in these theories, havethe predominance of financial capital, manyeconomists believe that the human resource basemust be directly considered in order to achieveeconomic development goals.

The connection between education andeconomic growth is exceedingly complex. It isfar from easy to identify those fruits of educationthat are useful in economic endeavors. It takesyears to develop entrepreneurial capabilities andyears for these capabilities to prove their worthin production.

OutputsThe creation of small businesses generates

employment opportunities, creates wealth, andleads to a broader tax base, improving suchelements of infrastructure as education andtransportation. Such outputs comprise a



sustainable economy that fosters developmentand growth.

The EntrepreneurThe inputs and outputs of the economic

system are mediated by the entrepreneur whodrives the process of economic growth. Vosleestates that,

“In its broadest sense an entrepreneurmay be described as a person who hasthe ability to explore the environment,identify opportunities for improvement,mobilize resources and implementactions to maximize thoseopportunities... He is the catalyst ofchange, able to carry out newcombinations, instrumental indiscovering new opportunities.”(Voslee, 1994, pg. 147)

In this conceptual model, the entrepreneuris the fuel for, and center of economic growth.He or she actuates the development process bycreating small businesses, or by using innovativemeans to improve existing businesses. Thisprocess is powered by access to debt and equitycapital, labor, and other inputs.

Rural Institutions and RuralEntrepreneurship

Kraybill and Weber acknowledge theascendancy of political institutions over marketand civic institutions with the followinghistorical argument. Beginning with the NewDeal in the 1930s, “the federal government[became] the moving force in creatinginstitutions and organizations that raised livingstandards of low income rural residents”(Kraybill & Weber, 1995). New Deal policy,however, “created large, bureaucraticorganizations that were slow to adapt to a ruraleconomy in which employment and incomewere no longer based primarily on naturalresources” (Kraybill & Weber, 1995). Muchlater in the 1980s, conventional wisdom heldthat,

“…the institution of the market wasstrengthened by legislative and judicialaction in response to perceiveddeficiencies of governments, shifting thefocus from market failure as a rationalefor government interventions to a focus

on ‘government failure’ as a reason foravoiding intervention. Agriculturalcommodity programs, as well as areaand rural development programs, werewidely criticized as unnecessary andineffective.” (Kraybill & Weber, 1995,pg. 1265)

Kraybill and Weber contend that civicorganizations possess the potential for providingrural revitalization opportunities that market andpolitical institutions are unable to offer in the1990s. “These organizations, embedded in localculture, are important sources of informationand feedback for economic and politicalorganizations.” Thus, the importance of civicorganizations can and will play a majorsupporting role along with government indevelopment efforts of rural communities.Sustainable economic growth strategies in ruralcommunities can no longer exclusively considerenterprise innovation in isolation of necessaryinnovations in government and civic institutions.Innovative combinations supporting bothinstitution and business efforts are imperative.

Voslee asserts that while there has been agradual accumulation of knowledge and insightas thinking on development has evolved over thepast fifty years, the question of how to generateentrepreneurship and sustainable economicgrowth remains unanswered (Voslee, 1994).What is needed is a conceptual understanding ofentrepreneurship and its role in the process ofeconomic development. He contends thatevidence from developing and developedcountries supports the position that governmentshould not manage development in detail. Hestates that:

“Many forms of intervention haveproved counterproductive and theimportance of openness and competitionhas been acknowledged. Theory andpractical experience indicate thatinterventions are more likely to hinderthan help development unless they aremarket friendly.” (Voslee, 1994, pg. 2)

This view supports the argument thatinterventions are most successful at facilitatinggrowth if they provide a favorable environmentfor business. Michael Porter asserts that this canbe accomplished if government uses public fundsin ways that do not distort business incentives,



but rather to focus “on providing infrastructureto support genuinely profitable businesses.”

The conceptual framework of this study'sentrepreneurship-centered economicdevelopment is guided by some of thefundamental principles set forth by MichaelPorter in his model of inner city economicdevelopment (see Figure 2.1). This model isbased not on the idea of redistributing wealth,but creating wealth within disadvantagedcommunities. The goal of Porter's model is “toidentify and exploit the competitive advantagesof inner cities that will translate into trulyprofitable business” (Porter, 1995). Thus, thefocus of such a model is the private sector, asopposed to government and social serviceorganizations. Another important factor in hismodel is engaging skilled and experiencedminorities in building businesses versus engagingthem solely in the social service sector. What isessential to the proper functioning of such amodel is that:

“Government assume[s] a more effectiverole by supporting the private sector innew economic initiatives. It must shiftits focus from direct involvement andintervention to creating a favorableenvironment for business. This is not tosay that public funds will not benecessary. But subsidies must be spentin ways that do not distort businessincentives, focusing instead on providingthe infrastructure to support genuinelyprofitable business” (Porter, 1995, pg.67).

Drawing from Porter, fundamental factorsunderlying the entrepreneurship-centered modelin this study are:

• An economic versus a social focus,emphasizing the creation rather than theredistribution of wealth within the ruralAfrican-American community.

• An emphasis on the private sector, asopposed to the government and socialservice sector, that highlights the supportiverole of the latter two sectors.

• An emphasis on skilled and experiencedminorities engaged in entrepreneurialactivities.

Our economic model, diagrammed inFigure 2.2, has several key components thatconcern relationships entailing reciprocity.Those components are both economic and non-economic (the entrepreneur, inputs and outputs,economic base, etc.). The outputs are whatcomprise the sustainable economic base, whichis linked to sustainable economic developmentby positive economic growth. Four componentsof this system that constrain or enabledevelopment are: the amount and/or quality ofhuman resources, technology, institutions, andthe environment.3 At the center of this model isthe entrepreneur, who fuels this economicsystem and sets the development process inmotion through creation of businesses orimprovement of existing businesses.

Determinants of EntrepreneurshipThis section describes the relationship

between the variables (some of which werederived from the conceptual overview ofentrepreneurship and economic growth anddevelopment theories above) expected to have asignificant role in determining the rate ofAfrican-American business ownership and theirsubsequent impact on community development.Hypotheses are also set forth regarding howthese variables directly or indirectly influence therate of business ownership in a community.These determinants of entrepreneurship fall intothree main categories: human capital, economicwell-being, and locational attributes. They areexplained to facilitate an understanding of thepositive impacts of enterprise development. Theaim is to also give policy makers insight into thevariables that might be manipulated to enhanceAfrican-American business developmentinitiatives.

There have been a substantial number ofstudies done on African-American businessownership and indigenous African-Americandevelopment strategies. However, the bulk ofliterature has primarily focused on urban areas inthe United States, leaving little informationabout rural African-American-owned business.The rural perspective must be included in orderto analyze completely African-Americanenterprise development. The literature clearlyindicates significant differences betweensocioeconomic characteristics in rural and urbanareas, demographics, and other factors thataffect business and community development.The following is a discussion of the specific



determinants of entrepreneurship in both ruraland urban areas.

Human Capital DeterminantsOne explanation of persistent poverty in

rural areas is the continued departure of personswith high levels of human capital, i.e. theeducation, training, and experience needed tofuel development efforts. African-Americanentrepreneurship relies on individuals with suchhuman capital. Considering the directrelationship between education and income,increases in education levels will have anexpected positive impact on the African-American business ownership rate.

Economic Well-Being DeterminantsThe availability of capital is crucial for

existing businesses to expand and new ones toform. “Throughout the literature, access tocapital has been recognized as a factor restrictingblack business ownership and limiting the size ofblack-owned businesses” (O'Hare, 1990). Amajor source of capital for many business ownersis personal wealth, as opposed to loans. As withmost of the socioeconomic characteristics of theAfrican-American population, African-Americans lag far behind their whitecounterparts in the accumulation of wealth.O'Hare asserts that,

“The major source of wealth for mostU.S. families is equity in a home.Consequently, groups that have higherrates of home ownership are likely tohave more wealth and more financialresources available...for businesspurposes” (O'Hare, 1990, pg. 101).

Thus, the rate of African-American homeownership will be used as a proxy for thequantity of capital controlled by African-Americans. It logically follows that wealth andincome are directly related. The medianhousehold income of a community, a proxy forthe economic well-being of the entirecommunity, is also expected to be directlyrelated to the rate of African-American businessdevelopment.

Traditionally, black-owned businessesoperated in a “protected” market. The fact thatsegregation and racial discrimination restrictedthe clientele of African-American-ownedbusinesses initially served as a protective trade

barrier. However, with de-segregation came notonly increased competition, but a decrease indemand for the products and services ofAfrican-American-owned businesses. Baer andJones purport that, “...integration diminished thecapacity and strength of the incidental collectiveactions of African-Americans toward economicdevelopment.” As these “barriers to trade” fell,black business owners did not explore manymarket expansion activities. As such, African-American business started, and many continue,to serve a diminished clientele (O'Hare, 1990).

In its report on the characteristics ofbusiness owners, the Economic Census containsstatistics that demonstrate the limits of themarket for most African-Americanentrepreneurs. In 1987, minorities comprised75-100 percent of the customers of over 40percent of all African-American-owned firms inthe United States. This restriction in clientelehas serious implications for the rate of African-American business ownership. The percent ofthe population that is African-American is notonly a proxy measure of the supply of African-American entrepreneurship but is also a measureof demand for products of black-owned firms.The African-American business owner'spotential for success will be inhibited by thesocioeconomic characteristics of the ruralsouthern African-American population (highlevels of poverty and subsequent low incomes).“To the extent that black-owned businessesserve solely or largely black customers, demandis simply the product of the number of blacksand their incomes” (O'Hare, 1990).

The size of the African-Americanpopulation in a county and the average incomeof African-Americans in the county are thusproxies for business demand. We expect that asthe average income of the African-Americanpopulation increases, so does the rate of blackbusiness ownership. This does not always holdtrue, as African-Americans with higher incomesmay patronize other businesses that are notAfrican-American-owned.

Locational Attributes of a Community asDeterminants

In his theoretical appraisal ofentrepreneurship, Leibenstein recognizes thatthe incidence and nature of entrepreneurialactivities depend on the nature and variety ofmarkets necessary to launch a firm and keep itgoing. Thus, attention should be given to the



environment in which a firm operates. Alongwith a measure of rurality (distance from anurban area), other locational attributes include:available financial services, transportationservices, access to information and technology,and links with government and civic institutions.

Section 3: SocioeconomicCharacteristics of the Rural South

Poverty rates, levels of education,unemployment rates, and mortality rates areseveral common measures used to indicate thequality of life in a community. The problem ofcommunity development in the rural southernBlack Belt stems from the apparent lack of“competitive advantages” necessary tosuccessfully compete or withstand the vagaries ofstructural changes in national and globaleconomies. Those competitive disadvantagesarise from, among other things, low economicwell-being and the resulting low quality of life inthese underdeveloped communities. Thefollowing is an analysis of selected economicwell-being and quality-of-life indicators.

Population TrendsSlavery, followed by legal forms of

segregation and discrimination, had a substantialinfluence on the economic development of theAfrican-American community. In the 1890s, amajority of the African-American populationwas concentrated in the rural South, a directresult of the old slave economy. Most wereemployed in the agricultural industry or in low-paying service occupations. Throughout thistime, the socioeconomic status of African-Americans changed very little.

Since the turn of the century, several factorshave contributed to changing the socioeconomicstatus of African-Americans. These factorsinclude major structural changes in theagricultural and industrial sectors of theeconomy, subsequent African-Americanmigration (from the South to the North), theDepression, World Wars, changes in federalgovernmental policy, and the Civil RightsMovement. During the 1920s, the percent ofAfrican-Americans residing in the Southdeclined dramatically. This trend continued intothe 1970s.

By 1970, 53 percent of African-Americansremained in the South (down from 90 percent in1910). This decrease was the result of massivemigrations to the North in search of job

opportunities in the industrial sector. In 1980, ofthe 52.2 percent of blacks residing in the South,40 percent were nonmetropolitan residents. By1990, of the 54.3 percent of African-Americansin the South, only 28.3 percent were ruralresidents, and in 1994 that percentage droppedbelow 25 percent. This general decline insouthern rural African-American populationsmirrors the general decline in the national ruralAfrican-American population (see Figures 3.1.1and 3.1.2).

In the mid-70s, this migration trend beganto reverse. By 1990, the South had regainedmore than a half-million African-Americansleaving the North. These migrants left citieswith already stagnant economies and returned ormoved to areas where the economy was all butdestroyed; areas where a small segment of theAmerican population suffers some of the highestpoverty rates, lowest educational attainmentlevels, and lowest incomes in the country. Stack,who studied the migration patterns of African-Americans from the rural South, noticed thatAfrican-Americans were returning to,

“…communities that by all statisticalmeasures can only be assessed as some ofthe least promising places in all ofAmerica. The USDA has established adismal category for them, the ‘PersistentPoverty Counties', and certainly for thepast fifty years or so, their majorcontribution to the American economyhas been the production of out-migrants. That such places have nowbecome destinations for a large scalereturn of African-Americans is adifficult fact for standard migrationtheories to digest.” (Stack, 1996, pg. 8)

Why would individuals want to move toplaces of persistent poverty? Stack explains whatseems to be economically irrational behavior interms of a social debt or obligation. “Bad timesback home can pull as well as push. People feelan obligation to help their kin or even a sense ofmission to redeem a lost community” (Stack,1996).

The most promising aspects of this push-pull effect are the characteristics of thesereturning African-Americans. This well-documented population migration has beentermed the “middle class movement” by analysts,telling us something of the income, education,



and wealth of these in-migrants (Smith andPedersen, 1997). Stack states that, “in thedarkness before the dawn of the twenty-firstcentury, as the southern countryside is gatheringin people who have experienced other ways oflife, who have come home with new ideas, newenergy, new skills, new perspectives,” there is achance for new beginnings, a chance, “to remakethe South in a different image.” (Stack, 1996,pg. xvii)

Poverty TrendsA historical investigation of the trends in

poverty levels in the United States reveals ageneral decline in the percent of persons belowthe poverty level in the past four decades. SinceWorld War II, the percent of all persons (of allraces) in the United States below the povertylevel has been significantly reduced. Publicpolicy campaigns, such as Lyndon Johnson’sWar on Poverty, further helped to close thepoverty gap between blacks and whites (seeFigure 3.2). Since 1968, however, the povertyrate for African-Americans has remainedrelatively steady, and a wide gap between povertyrates of whites and blacks remains.

The percent of African-Americans belowthe poverty level in the United States in 1989(30.7%) was three times that of whites (10.0%).The percent of African-Americans below thepoverty level in both metropolitan and ruralareas was more than double that of their whitecounterparts in 1992 (see Table 3.1).

Some of the primary reasons for the highconcentration of poverty in the nonmetropolitanSouth include the lack of job opportunities, highconcentration of low-wage industries that takeadvantage of unskilled labor, migration, familystructure4, and race.

The elderly and youth (less than 16 years ofage) comprise a population of individuals whoare less economically active and have a higherdependence on others (such as family andgovernment) for their economic well-being.Historically, poverty rates for children have beenhigher than metro areas. In 1988, 24 percent ofchildren in United States were in families belowthe poverty line. Although a higher proportionof married-couple families work in these areas, asubstantial number of these families live belowthe poverty level and constitute the growingpopulation of the “working poor.” Table 3.2shows percent of elderly, youth, and families inpoverty.

Significant changes in the family structureare evident in the trends and patterns ofmarriage, divorce, and fertility (Rogers, 1991).The number of female-headed households havegenerally increased.

Trends in Educational AttainmentIn 1920, almost 14 million acres of land

were controlled by African-Americans, but by1987, only 2.8 million acres remained. Thedisadvantaged—particularly ethnic minoritieswho were spun out of agriculture—were notadequately re-equipped, through education andtraining, to contribute to a changing economy.Empirical evidence shows a positive relationshipbetween education and earnings, whichhighlights the importance of investment ineducation. Human capital theory supports thehypothesis that education and experience aredirectly connected to higher levels of income.The nature of the relationship betweeneducation and economic development is not asclear, however. Higher levels of education maycontribute to economic growth anddevelopment, but the relationship betweeneducation and economic development is not asdirect as the relationship between education andincome.

In the past, poor rural communities wereable to capitalize on their low-skilledpopulations by offering low cost labor toindustry. Due to the impact of a globaleconomy, the poor have become detrimental totheir communities’ economic health.Manufacturing firms in the late stages ofcapitalist development move freely and are ableto take advantage of even cheaper labor in lessdeveloped countries. Those communities are leftunable to adjust, can no longer provide cheaplabor, and are not equipped to provide technical-skilled labor. These disadvantaged communitiesare thus left behind, unable to structurally adjustto a global economy where efficiency,comparative advantage, and competitiveness rulethe day. Local governments have insufficient taxbases to support quality education. Furtherincentives to adequately fund local schools areoften absent because those with high levels ofeducation are most likely to migrate, leavingcommunities with as few resources as theystarted with. Ross and Rosenfeld observe theconsequence of this under-investment in humancapital in rural areas. They assert that, “if localworkers lack the education and skills needed to



be flexible and technologically responsive,industries [that remain in these communities]will rely on workers from outside the localcommunity to supply their needs. Thus, acommunity could experience economic growthwithout a substantial share of the local workforcebenefiting from new jobs” (Ross and Rosenfeld,1988). Unfortunately, this continues to be thereality for many poor rural communities.

A historical disparity exists between blacksand whites in educational attainment (seeFigures 3.3.1 and 3.3.2). The gap is closingbetween the percent of blacks and whitescompleting high school, but widening for levelsof higher educational attainment. Thiseducational gap has significant implications forAfrican-American employment opportunities inan economy where higher skills and educationallevels are prerequisites for entering the labormarket. These trends mirror educationalattainment levels in the South, as demonstratedin Figures 3.3.3 and 3.3.4.

UnemploymentAccording to Killian and Hady, diversity of

a local economy measures how evenly an area'sworkers are distributed across industrialcategories, and specialization refers to the extentto which a single industry is the major source ofemployment in the area. Communities areclassified as having a specialized industrialstructure if a relatively large proportion of thelabor force is employed in a single industry (suchas agriculture, mining, textiles, durablemanufacturing, public education/admin-istration). Killian and Hady assert thatdiversification is not synonymous withdevelopment.

Economic development involves both rapidand steady growth in income, employment andother indicators of welfare. Killian and Hadycontend that a trade-off exists between rapideconomic growth and stable economic growth,and overall economic performance generallydepends on both the diversity of the localindustrial structure and characteristics ofdominant industries. So, the mere presence ofjobs doesn't guarantee increased incomes orincreased well being. The type of jobs availableis a significant determinant of income levels.The industrial composition of the Black Belt issuch that manufacturing dominates the job fieldand service industry provides employment forabout a quarter of the working population (Falk

and Lyson, 1988). According to dual labormarket theory, jobs can be divided into twosectors: core and peripheral. Industries in thecore sector are large, diversified, capitalintensive, high paying with opportunity forcareer mobility. In the peripheral sector,industries are relatively small, labor intensive,vulnerable to changes in the labor market, lowpaying with limited opportunity for careermobility. Individuals employed in peripheralsectors are more likely to be impoverished thanthose in the core sector. This is the case in manypoor rural areas in the southern Black Belt. Falkand Lyson summarize the characteristics of theseunderdeveloped rural southern economiesthrough a comparison to economies in the ThirdWorld. They purport that,

“The industrial fabric of the South iswoven of cloth similar to that found indeveloping countries. Like the industrialbase in those countries, businesses inrural areas of the South are oftencharacterized as being in the peripherysector of the economy, while coreestablishments are more likely to befound in the urban areas.” (Falk andLyson, 1988, pg. 8)

Despite this comparison, highunemployment rates that persist in the poorrural South indicate “reserves of labor” thatmight be mobilized to contribute to businessdevelopment.

Overview of African-American BusinessDevelopment Trends and Characteristics

Since 1972, the number of African-American-owned firms has substantially andsteadily increased with an almost fifty-percentgrowth between 1987 and 1992. “The data showthat African-Americans are starting businessenterprises at a greater rate than Americans ingeneral,” (Woodard, 1997; see Table 3.3). Thisraises the question of where this business activityis geographically located and in what industriesis it concentrated? Woodard observes that thegeographic concentration of African-American-owned firms closely reflects population densitiesof African-Americans. As can be observed fromTable 3.4, the rate of black business ownership(the number or black businesses per 1000 blackpersons) is relatively high for states with higherthan the national average concentration of



African-Americans. For instance, in Florida,Georgia, and Virginia, the African-Americanbusiness ownership rate is higher than that forthe United States and the African-Americanpopulation in all these states exceeds thenational average of 12.1 percent.

The industry that accounts for the highestvolume of African-American-owned firms is theservice industry. This is a historical trend. “Thefastest growing enterprises since 1977 are inindustries requiring a high level of skill andeducation, such as business and health servicesand specialty trade contractors” (Woodard,1997). Bates observed that “minority-ownedbusinesses, traditionally concentrated in small-scale retail and personal service sectors, werehistorically an obscure sector of the economy”(Bates, 1993). However, the traditional minoritybusiness community that consisted of primarilysmall firms serving predominately minorityclientele is changing. Minority businesses havebegun to take advantage of expanding marketopportunities with even larger firms gearedtoward corporate and government clients (Bates,1993 and Woodard, 1997).

“Opportunities created by set-asides,preferential procurement policies, andthe like have encouraged better-educated, younger entrepreneurs tocreate and expand business in finance,insurance, real estate, contracting,wholesaling, manufacturing andbusiness services. Entrepreneurs in theseemerging lines of business are younger,better educated, on average, and havehigher earnings than other self-employed minorities” (Bates, 1993).

Although the face of African-Americanbusiness is changing, Bates observes that the“traditional personal service and small scale retailfields account for a larger number of firms thanthe combined total of the emerging lines ofbusiness.” Those owners of businesses in thetraditional areas have, on average, lowereducation and earnings levels, and are in a stateof continuous decline, particularly in thepersonal services sector. “Since the 1960s, theminority business community has started todiversify and expand in response to an influx oftalent and capital, but continues to lag behindthe non-minority small business universe”(Bates, 1993). Bates proposed that this lag is due

to constraints such as access to financial capital,geographic location, and discrimination.

Table 3.5 shows African-American-ownedbusiness industry concentration. Historically,African-American-owned firms have beenconcentrated in service and retail tradeindustries. Over time, the percent of African-American-owned firms in the service industryincreased while those in retail trade decreased.This is consistent with national trends.

In 1987, the service industry possessed thehighest concentration of African-American-owned firms in the United States, accounting for49 percent of all African-American-ownedfirms. In 1992, 53 percent of black-owned firmswere in the service industry and within thisindustry, business services accounted for thehighest concentration of black-owned firms.Retail trade accounted for 16 percent in 1987and 14 percent in 1992. The number of African-American-owned firms in the United States hasincreased from over 300,000 in 1982 to over400,000 in 1987, employing over 200,000individuals in 1987. The number of African-American-owned firms reached over 600,000 in1992. In 1987, the greatest number of black-owned firms were businesses with less than$5,000 in receipts. These accounted for onepercent of all employees of black-owned firms.Less than one percent of African-American-owned firms had receipts of one million dollarsor more. These accounted for 35.7 percent of allemployees of black-owned firms.

Though the small number of large of firmsaccounted for the employment of the mostlaborers in African-American enterprises,focusing on smaller firms is a more realisticstrategy for development of depressed economieswith comparative disadvantages in the ruralSouth. Timothy Bates argues that“entrepreneurial ability is highly correlated withboth education and income levels: successfulbusiness operators tend to be above average inboth categories.” (Bates, 1993). Thus, the loweducation and income levels of individuals in therural South make an entrepreneurship-centereddevelopment strategy extremely challenging.

Section 4: SocioeconomicCharacteristics of the Rural South andAfrican-American Business Ownership:Procedures and Results

The fundamental objective of thisinvestigation is to explain the relationship



between the incidence of African-Americanbusiness ownership and several socioeconomicand demographic characteristics in rural andurban Black Belt counties. A discussion of theresults will focus more on the rural southernBlack Belt counties. To achieve this goal, weperformed correlation analyses and estimated aregression model. Data used in this analysis wereobtained from selected secondary sources.

a) African-American Business Ownership Rate(BUS) is from the Survey of Minority-OwnedBusiness Enterprise.

b) Income (INC) and Black Income (BINC)are from the Current Population Reports,Series P60-184, 188: Money Income ofHouseholds, Families, and Persons in theUnited States.

c) Poverty (POV) is from the CurrentPopulation Reports, Series P60-160, 163, 171,and 185: Poverty in the United States.

d) Professional (PROF) is from the 1990Census of Population and Housing, EqualEmployment Opportunity (EE0) File.

e) African-American Home Ownership(HOM), High School (HS), College(COL), and Percent of County African-American (PER) are from the CurrentPopulation Reports Series P60-184, 188:Money Income of Households, Families, andPersons in the United States, or P60-160, 163,171, and 185: Poverty in the United States.

Characteristics of Study AreaThe black business ownership rate varies

substantially across a sample of 197 counties in11 southern states: Alabama, Arkansas, Florida,Georgia, Louisiana, Mississippi, NorthCarolina, South Carolina, Tennessee, Texas,and Virginia. The lowest black businessownership rate is 8 businesses per 1,000 blackpersons in Sunflower county, Mississippi. Thisparticular county has an urban populationbetween 2,500 and 19,999. It is not adjacent to ametropolitan area, and is thus considered ruralin this study. The highest rate of black businessownership is 40 businesses per 1,000 blackpersons in Lancaster County, Virginia. Thiscounty is completely rural, with fewer than2,500 persons living in urban areas and is notadjacent to any metropolitan area. Counties inthis sample range from a 15 percent poverty rate(DeKalb County, Georgia, the central county ofa metropolitan region) to 65 percent (Holmes

County, Mississippi, a county adjacent to ametropolitan region with an urban populationbetween 2,500 and 19,999). There are 35 black-owned businesses per 1,000 blacks people inDeKalb. African-Americans make up 42 percentof its population and the median householdincome is $35,721. Conversely, only 13 black-owned businesses per 1,000 black people are inHolmes County and African-Americans makeup 76 percent of the county population. Themedian household income of the county is only$9,809. In this study, each of these counties isclassified as urban because of the size of itspopulation and proximity to a metropolitan area.

The Beale Code classification of counties, ascheme used to classify counties in this sample asrural or urban, is shown in Table 4.1. Forpurposes of this investigation, those countieswith a Beale Code of 0-6 are considered urban,and those with a code of 7-9 are classified asrural. We wanted a relatively conservativemeasure so we used the Beale Codes because itallowed for the sharp distinction between ruraland urban places, especially smaller townsadjacent to urban areas that have thecharacteristics of urban places. The averagebusiness rate of those counties considered urbanin this investigation is 15.7 (per 1,000 persons),the mean percent of the population that is blackin these 144 counties is 39 percent, per capitablack income is $6,138; and median householdincome is $22,072. The average black businessownership rate of those counties considered ruralin this study is 17.6 (per 1,000 persons), and themean percent of the population that is African-American is 47 percent, higher than that of theurban counties. However, per capita income ofthe black population is lower ($5,715) for these53 rural counties, and median household incomeof these counties is also lower; $18,872. Theaverage black poverty rate of 39 percent for ruralareas in this sample is higher than the rate inurban counties, 37 percent. Table 4.2 shows thenumber of counties in each Beale Code category,their average business rate, and the highest andlowest business rates in each category.

Overview of Correlation and RegressionAnalyses

Economic theory makes qualitativestatements about economic phenomena, butdoes not provide any quantitative measure of therelationship between economic variables. Tosupply empirical substance to this economic



theory of African-American businessdevelopment, correlation and regression analyseswere used to observe the relationship betweenblack business ownership rates and an area'ssocioeconomic and demographic characteristics.

Both regression and correlation analyses areconcerned with how one variable is related toanother. Specifically, regression analysis isconcerned with the way one variable, thedependent variable, is related to one or moreother variables, the explanatory variables,holding all others constant. The aim ofregression analysis is to predict the variability ofthe dependent variable in terms of the knownvalues of the independent variables. It should benoted that regression analysis deals with thedependence of one variable on one or more othervariables. For example, this study will examinethe relationship between the incidence ofAfrican-American-owned firms (the dependentvariable) on various socioeconomic anddemographic explanatory variables. By contrast,the objective of correlation analysis is simply tomeasure the strength of association between twovariables. It can not make any assertions aboutthe causation of the incidence of black businessownership.

Description of Dependent and ExplanatoryVariablesTheoretical Model of African-AmericanBusiness Ownership

The theoretical foundation and conceptualanalysis of entrepreneurship-centered economicdevelopment presented in this section leads toan analytical model to explain the relationshipbetween African-American business ownership(a proxy for entrepreneurship), and varioussocioeconomic and demographic characteristicsof the population. The theoretical modelfollows:

BUS= f (Availability of Capital, Wealth, Infrastructure, HumanCapital/Resources, Employment, Technology,Institutional Linkages, Environment) where BUS is theAfrican-American Business Ownership Rate.

Dependent VariableThe rate of African-American business

ownership (BUS), a proxy for entrepreneurship,will be measured by the number of African-American-owned businesses in each county,divided by the black population and multipliedby 1,000. This rate will yield the number of

African-American-owned firms per 1,000African-Americans in a county. The sources ofdata used to compute this rate were the 1992Survey of Minority-Owned Business Enterprisesand 1990 Census of Population HousingCharacteristics. The rate is computed as follows:

BUS= (Number African-American-Owned Businesses) X 1000 (Number of African-Americans in County)

Human Capital VariablesThe variables representing characteristics of

the labor force and the management capacitywithin a county will be calculated by the numberof African-Americans, 25 years and older,completing high school and four years of college,respectively. This can be divided by the totalnumber of African-Americans in the county andmultiplied by 1,000 (consistent with themeasurement of the dependent variable) to getthe rate of high school and college completionfor the black population in a county. Thesuggested relationship derived from theory isthat an increase in African-American highschool and college completion will be followedby an increase in the rate of black businessownership. They are computed as follows:

HS = (Number African-Americans complete high school) X 1000 (Total number of African-Americans in county)

COL = (Num African-Americans complete 4 yrs college) X 1000 (Number of African-Americans in county)

Economic Well-being VariablesThe home ownership rate, as discussed

earlier, is used as a proxy for wealth. Thesuggested relationship between African-American home ownership and black businessownership is positive, meaning that an increasein the level of black wealth will result in anincrease in the incidence of African-Americanbusiness ownership. Wealth is a measure of thesupply of entrepreneurs and of demand forproducts of black firms, and is computed asfollows:

HOM = (Number of African-American home owners) X 1000 (African-American Population in county)

Another measure of demand is the African-American population, which is calculated by thepercent of the county population that is African-American (PER). PER was computed bydividing the number of African-Americans in a



county by the total population. We suggest thatas the African-American populationconcentration increases, so will the rate ofAfrican-American business ownership.

The median household income (INC) of acounty is a proxy measure of the economichealth of a county. It is suggested that as theoverall median income of a county increases, therate of black business ownership will increase aswell. The sources of these data are: USA Counties1996 on CD-ROM prepared by the Census, the1990 Census of Population and Housing, and theEqual Employment Opportunity (EEO) machinereadable data file.

Locational Attributes of CommunityThe extent to which a community is able to

benefit from concentration by being adjacent toa thriving or economically stable urban ormetropolitan area will be considered andcalculated by using a dummy variable which willdistinguish urban from rural counties. In thisstudy, counties with a Beale Code of 0-6 wereclassified as urban and those with a code of 7-9were considered rural. This grouping of ruraland urban differs from the Census classificationof 0-3 as metropolitan/urban and 4-9 asnonmetropolitan/rural. This deviation from theCensus's grouping is due to the fact that thosecounties with Beale Codes of 4, 5, and 6 wereuncharacteristic of rural areas, due to theirpopulation size and adjacency to metropolitanareas.

Categorical (Binary) VariablesCategorical or qualitative variables

(variables that cannot be measured on anumerical scale) indicating the presence orabsence of an attribute (e.g. rural or urban) wereincluded in the empirical model to represent thesuggested difference in the rate of African-American business ownership in rural versusurban counties. A categorical variable is anartificial variable constructed such that it takesthe value unity whenever the qualitativephenomena it represents occurs, and zerootherwise. The categorical variables included inthis model were specified as either additive ormultiplicative. This was done to measure theextent to which the intercept and slopecoefficients of the two categories (rural andurban) differ. Specifically, the coefficient forURBAN will tell how much the value of theintercept term that receives the value of one (in

this study, this category is urban) differs fromthe intercept coefficient of the base category (thecategory assigned a value of zero, the ruralcategory is considered the base, reference, oromitted category). The coefficients of theproduct of the explanatory variables and thebinary variable (URBAN*HOM, URBAN*HS,URBAN*COL, URBAN*PER, URBAN*INC)will tell us by how much the slope coefficients ofthe urban regression model differ from the slopecoefficients of the rural regression model.

Results of Correlation AnalysisThe main objective of the correlation

analysis is to determine the relation betweenblack business ownership rates and varioussocioeconomic and demographic characteristicsof an area. A sample of 197 counties was divided(rural and urban) and separate correlationanalyses were estimated for rural and urbancounties in order to gain an understanding of theassociation between variables depending on thegeographical classification of an area. Pairwisecorrelations were calculated and an examinationof the Pearson correlation matrix uncoveredsome intriguing results.

In rural counties, the correlation betweenthe African-American business ownership rateand per capita income of the black population(BINC) was +0.48, as shown in Table 4.3. Thissuggests that the income level of the African-American population is fairly important indetermining the black business ownership rate.In urban counties, the correlation between percapita income of the African-Americanpopulation and black business ownership ratewas also strong, +0.64 (see Table 4.4). Thecorrelation between black business ownershiprate (BUS) and median income (INC) of theentire county in rural counties was +0.46 and theassociation between these variables (BUS andINC) was stronger and positive in urbancounties, +0.64. O'Hare found that thecorrelation between rural black income and blackbusiness ownership rate was positive butrelatively weak, +0.48. In this study, however, itseems that both black per capita income andmedian income of the entire county are bothmoderately to strongly associated with BUS inrural and urban areas. This suggests that notonly is overall economic climate of the county animportant determinant of black business success,but so is the income level of the black



population, a proxy for demand of goods andservices.

No striking differences exist between thecorrelation of the black home ownership rateand black business ownership rate in urban andrural counties. The correlation between blackbusiness ownership rate and black homeownership rate in rural and urban counties were+0.51, and +0.49, respectively, suggesting thatthe wealth of the African-American populationis also fairly important in determining the blackbusiness ownership rate in both rural and urbancounties.

The correlation between black businessownership rate and the percent of the populationthat is African-American was relatively smalland negative for both rural and urban counties,-0.23 for rural and -0.17 for urban. O'Harefound that the percent of the population that isAfrican-American was also negatively associatedwith black-owned-business rates in rural areas ofsouthern states (O'Hare, 1990).

The correlation between the African-American college completion rate and blackbusiness ownership rate was small, but positive,for rural counties (+0.06) and much larger forurban counties (+0.57). This suggests that therate of college completion is a more importantdeterminant of the incidence of black businessownership in urban than in rural areas. This canbe explained by the migration of individualswith high school degrees in search of economicopportunities out of rural areas. The oppositeholds true for the correlation between theAfrican-American rate of high schoolcompletion and the black business ownershiprate. For rural counties, the correlation ispositive and much larger (+0.40) than that forurban counties (+0.12). O'Hare found that apositive association of +0.44 existed betweenblack business ownership rates and the percentof rural blacks with a high school education, anda positive but a weak relationship between black-business ownership rates and the share of adultswith a college degree, +0.19 (O'Hare, 1990).O'Hare's results are consistent with the findingsof this investigation. These findings suggest thatin rural areas, higher percentages of high schoolgraduates will mean more African-American-owned businesses.

Another measure of human capital is thenumber of African-Americans holdingprofessional and managerial positions. Thecorrelation between the percent of African-

Americans with managerial and professionalpositions and the African-American-businessrate in rural areas is negative and extremely closeto zero (-0.02) while in urban areas it is muchhigher and positive (+0.54). This finding impliesthat the percent of blacks in professional andmanagerial occupations in urban areas has arelatively strong and positive association to blackbusiness ownership. In rural areas, theassociation between the percent of blacks withmanagerial and professional occupations and theincidence of black business ownership isextremely weak and negative. O'Hare also foundthe correlation between the percent of blacksemployed in managerial or professionaloccupations and the black business rate in ruralareas to be weak and negative -0.01. He assertsthat,

“The low correlation between the shareof blacks in management andprofessional positions and the blackbusiness ownership rate may be due toselect out-migration of blacks. It ispossible that the most able blackmanagers and professionals leave ruralareas, for areas where there is moreopportunity and where the racial climateis more benign.” (O'Hare, 1990, pg.102)

The poverty rate in the black populationhas similar correlations in both rural and urbancounties. It is -0.50 in urban and -0.45 in ruralcounties. See Table 4.5 for the mean value ofthese variables.

In summary, given the characteristics ofmost rural areas, we expect the rate of blackbusiness ownership to be lower (on average)than in urban areas. Black-business ownershipsvaried widely between counties. Inspection ofthe summary statistics from this study show thatfor this sample of 197 southern Black Beltcounties, the average black business ownershiprate in the 53 rural counties is slightly higher(16.7 businesses per 1,000 African-Americans)than that for the 144 urban counties (15.7 black-owned businesses per 1,000 black persons).These results are not too surprising as the rate ofblack-business ownership will naturally varyacross counties depending on the prevailingeconomic climate as well as characteristics of theblack population. A closer examination of thedata also confirms this fact. The data reveals that



black business rates vary among rural and urbancounties depending on the levels of African-American home ownership, poverty levels, percapita income, levels of educational attainment,economic conditions of the entire county, andother characteristics of the black population. Animportant point, then, is that variations from theexpected relations between rural and urbanAfrican-American-business ownership are mostoften due to the specific economic andgeographic characteristics of each county. Thisreinforces the need for case-specificdevelopment strategies as opposed to blanketpolicy solutions.

Description of Regression ModelA cross section of 197 Black Belt counties

was chosen to estimate a general multivariateordinary least squares regression model. Thecounties selected have the following generalcharacteristics: they were defined to be eithernonmetropolitan or metropolitan by the Bureauof the Census. They each consist of populationsthat are more than 25 percent African-Americanand they contain 100 or more black-owned firms(as measured by income and employment datafrom the 1992 Surveys of Minority-OwnedBusiness Enterprises Reports).

The single regression equation with binaryvariables was estimated as follows:

BUSi = α1 + α2URBAN + β1HOM +

β2(URBAN*HOM) +β3HS + β4(URBAN*HS)+ β5COL + β6(URBAN*COL) + β7PER +β8(URBAN*PER) + β9INC +β10(URBAN*INC) + ui

where:

BUS, HOM, HS, COL, PER, and INCare defined earlier in this section. URBAN is thecategorical variable, and URBAN*HOM,URBAN*HS, URBAN*COL, URBAN*PER,URBAN*INC are all interaction terms. Thecoefficients on these interaction terms are thedifferential slope coefficients that will indicatethe extent to which the slope coefficient of theurban model differs from that of the ruralmodel, as explained above. (See Figure 4.5.1).

If the observations are rural (URBAN = 0),then:

BUSrural = α1 + β1HOM + β3HS + β5COL +β7PER + β9INC + urural

or, if the observations are urban(URBAN=1), then

BUSurban = (α1 + α2) + (β1 + β2)HOM + (β3+ β4)HS + (β5 + β6)COL + (β7 +β8)PER + (β9 + β10)INC + uurban

Specification of ModelThe final empirical model selected is

somewhat different from the theoretical model,although it holds some of the same variablesincluded in the theoretical model. A lack of data,difficulties in measurement, and high pairwisecorrelations between many independentvariables (leading to problems ofmulticollinearity) led to the omission of severalvariables in the empirical analysis. Several of thevariables in the locational attribute category,such as transportation, financial services, andaccess to information and technology, wereomitted due to lack of data and difficulty inmeasurement (Dassie, 1998, pg.102). Thevariables that were highly correlated were theAfrican-American rate of college completion,the rate of African-Americans with managerialand professional occupations, the medianincome of the entire county, and per capitaincome of the African-American population inthe county. The African-American poverty ratewas also highly correlated with the medianincome of the entire county.

To avoid complications due tomulticollinearity, the rate of African-Americanswith professional and managerial occupations,per capita black income, and African-Americanpoverty rate were omitted from the empiricalregression equation. Because per capita blackincome (another proxy for the demand for theproducts of African-American-owned firms andsupply of African-American entrepreneurs) washighly correlated with median household incomeof the entire county (INC), and since INC alsoserved as an indicator of the overall economichealth of the county, it was used in place ofaverage black income in this model. TheAfrican-American rate of college completionwas used instead of the rate of African-



Americans with managerial or professionaloccupations because empirical evidence supportsthe thesis that those with college degrees holdthe majority of the managerial and professionaloccupations. So, we are left with the empiricalmodel that included the explanatory variablesdescribed above.

BUSi = α1 + α2URBAN + β1HOM +

β2(URBAN*HOM) +β3HS + β4(URBAN*HS) + β5COL + β6(URBAN*COL) + β7PER + β8(URBAN*PER) + β9INC + β10(URBAN*INC) + ui

Results of RegressionA single regression equation with binary

variables included to account for the differencesin rurality was estimated for all 197 counties todetermine the relationship between thedependent variable, BUS, and the independentvariables discussed above. All variables carriedexpected signs and all were statisticallysignificant with the exception of INC,URBAN*COL, and URBAN*INC. Theinsignificance of these interaction terms suggeststhat there is no noteworthy difference betweenthe slope coefficient of COL and INC in therural and urban equations. Forty eight percent ofthe observed variation in BUS was explained byvariation in the independent variables.

The results of the regression and thecalculated elasticities that allow for thecomparison of variables with different units areshown in Table 4.6.

In rural areas, the variables with thegreatest impact on BUS are: HOM, HS, andPER, demonstrated by their coefficients alongwith their elasticities. The comparatively lowelasticities (all below 0.13) of these samevariables in urban areas suggest that they are notas influential in determining the rate of African-American business ownership in urban areas.

In rural areas, the elasticities for HOM,HS, and PER were 0.37, 0.53, and 0.47,respectively. The fact that they are inelasticimplies that increases in black home ownershiprate, and African-American high school andcollege completion rates would result in less thanproportionate increases in the black businessownership rate. These variables are even moreinelastic in urban areas: 0.09, 0.13, and 0.06 for

HOM, HS, and PER, respectively. Althoughthe impact of these variables on the incidence ofblack business ownership may be small for bothrural and urban areas, they have a greater impacton black business ownership rates in rural areas.

The coefficient of URBAN (the differentialintercept) indicates by what amount theintercept coefficient for the urban countiesdiffers from the intercept coefficient for ruralcounties. The results show that the African-American business ownership rate in urban areasis higher on average than that in rural areas forthis particular sample. This finding is in linewith our initial hypothesis about the effect ofgeographical classification (rural or urban) onthe African-American business ownership rate.

The African-American home ownershiprate of a county (HOM), a proxy measure forwealth, proved a more influential factor indetermining black business ownership rates inrural counties. The elasticity of HOM in ruralareas, 0.37, suggests that a one percent increasein HOM would increase BUS by approximately0.37 percent. The elasticity of HOM in urbanareas 0.09, suggests that a one percent increasein the African-American home ownership ratewould only result in a 0.09 percent increase inthe African-American business ownership rate.This means that there is less of an impact ofhome ownership, a proxy for wealth, on theincidence of black business ownership in urbanareas. The fact that the level of wealth in theblack community is more important in ruralthan urban areas suggests that in urban areas,African-Americans who either want to start abusiness or expand an existing business haveslightly more options available for securingfinancial capital and may not have to rely asmuch on personal wealth for financial capital. Inrural areas, there are typically fewer institutionallenders, and “local banks are often too small andtoo conservative to make loans toentrepreneurs...” (Fratoe, 1993).

The African-American rate of collegecompletion did not have the large impact thatthe high school completion rate (HS), blackhome ownership rate (HOM), and African-American concentration (PER) variables did onthe incidence of African-American businessownership in rural areas. An examination of theelasticities indicates that COL had the leasteffect on black business ownership in rural areas(COL elasticity is 0.18 compared to the HOM,HS, and PER elasticities of 0.37, 0.53 and 0.47



respectively). This low impact of COL on blackbusiness ownership rates in rural areas can beexplained by the migration of residents withhigh school degrees to urban areas in search ofbetter professional or educational opportunities.Inspection of the correlation matrix shows thatin urban areas, the association between BUS andCOL was fairly strong and positive (+0.58) andin rural areas, positive, but close to zero (+0.06),indicating almost no association between thetwo variables. The opposite is true for theAfrican-American high school completion rate,HS. In urban areas, the association betweenblack business ownership rate and HS ispositive, but weak (+0.12); in rural areas, theassociation between the two variables is stronger(+0.40).

The concentration of African-Americans ina county (PER) had a greater impact on BUS inrural areas. A one percent increase in the blackpopulation in rural areas would result in anincrease of approximately 0.47 percent in theincidence of black business ownership. Incontrast, a one percent increase in the blackpopulation in urban areas would only increasethe black business ownership rate by 0.06percent. The reason most cited for this is thatblack business clientele are predominatelyAfrican-American (Woodard, 1997; O'Hare,1990; Bearse, 1993; Handy & Swinton, 1984).

In their analysis of the determinants of therate of growth of black-owned business, Handyand Swinton found that growth in the size ofthe market, measured by percentage increases inthe black population, was a significant factor inthe number of black businesses. In keeping withthe hypothesized relationship between PER andthe incidence of black business ownership, anincrease in the concentration of African-Americans in the county will increase rate ofblack business ownership. This limited marketfor African-American business makes thecharacteristics of a black population extremelyimportant. These characteristics include the levelof wealth and other factors that effect the abilityto expand the economic capacity of the blackcommunity. The significance of theconcentration of the black population in ruralcounties is attributed to the higher degree ofAfrican-American concentration and populationisolation in rural areas where the black firm ismore dependent on the immediate and relativelyhomogenous population. Rural populations aremore geographically dispersed than urban

populations. Therefore, urban areas benefit fromhigher density and usually more diversepopulations (for instance, African-Americanstend to live in areas with other minorities, suchas Hispanics, that the clientele of black firmscomprise.

Section 5: Conclusions and PolicyImplications

Although many studies focused onentrepreneurship-centered development in urbanareas, little information is available on ruralAfrican-American business ownership. Thisstudy is unique in that it focuses on African-American entrepreneurship as a communitydevelopment strategy in rural communities inthe southern Black Belt. Further, of the studiesthat already exist, many are exclusively anecdotaland few are quantitative. This study attempts toanalyze the demographic and socioeconomiccharacteristics of the African-Americanpopulation, as well as the economic condition ofthe environment in which the firm must operate.Another significant feature of this study is that itnot only establishes a conceptual framework forentrepreneurship-centered rural economicdevelopment, but also tests an empirical modelwith its foundation in this conceptualframework. Most importantly, this frameworkcan be used to guide future quantitative studiesof rural African-American business andcommunity development. We hope, in itscomparative nature, that this study will be asignificant contribution to the literature onAfrican-American business development. Themost salient features of this study are itsemphasis on rural African-American businessownership and its determinants and policyimplications for entrepreneurship-centered ruraleconomic development in the southern BlackBelt.

This study’s fundamental question: Is theresomething in the socioeconomic anddemographic make-up of an area that eitherretards or accelerates black businessdevelopment? This section will summarize theempirical answers to this question, discuss policyobjectives and implications, and end with adiscussion of suggestions for future research. Atthe core of our results are the followingobservations:

• Several socioeconomic and demographiccharacteristics of a county prove to be



influential factors in determining African-American business development.

• The characteristics that are importantdeterminants of rural African-Americanbusiness ownership rates in this sample of197 southern Black Belt counties are therate of African-American home ownership,the rate of African-American high schoolcompletion, and the concentration of theAfrican-American population.

• The incidence of black business ownershipbetween rural and urban areas differs, andsignificant variations exist within rural areasin terms of socioeconomic and demographiccharacteristics of the black population andthe economic condition of the county.

These results had the followingimplications for our original hypotheses.

Human Capital Variables• In rural areas, as the African-American high

school completion rate increases, the rate ofAfrican-American business ownership willincrease.

• As the African-American collegecompletion rate increases, the rate ofAfrican-American business ownership willincrease.

Economic Well-being Variables• As the rate of African-American home

ownership increases, African-Americanbusiness ownership rate will increase.

• An increase in the median householdincome of the entire county will notnecessarily affect African-American businessownership rates.

• As the African-American presence in theoverall population increases, the rate ofAfrican-American business ownership willincrease.

Locational Attributes of Community• Counties that are considered more rural are

expected to have lower African-Americanbusiness ownership rates.

• The geographical classification of a county issignificant—that a county is rural or urbanwill have a significant effect on therelationship between the African-Americanbusiness ownership rate and the explanatoryvariables.

Knowing that disparities exist between ruraland urban areas in terms of human capital,overall economic well-being, and other attributesthat effect business and economic development,and having observed the continuous decline ofagriculture in rural areas, it makes sense todevelop strategies void of solely agricultural-based policies and programs. Rather, a businessand community development strategy such asthe one set forth in this study, should beadopted.

Policy ImplicationsIn this study, the concentration of African-

American population, wealth as measured byAfrican-American home ownership rate, andrate of African-American high schoolcompletion were found to be the mostsignificant determinants of African-Americanbusiness ownership rates in rural areas. Whatneeds to be assessed, given these empiricalfindings, is the degree to which these factors canbe used as policy levers. Thus, an examination ofpopulation out-migration (often spurred bystagnant economic conditions), factors affectingwealth levels of rural residents (such as inabilityto sustain incomes), and the education of ruralyouth will be our discussion focus. Our ultimategoal is to forge a better synthesis betweenAfrican-American rural entrepreneurship andrural economic development.

The rural economy has lagged behind indevelopment due to its isolation from centers ofeconomic activity, the difficulties in structuraladjustment that stem from inadequate ruralinstitutions, and the characteristics of the laborpopulation (Rural Revitalization Task Force,1989). Rural residents who have the ability tomigrate to areas where economic prosperityseems to be more of a reality, do so in order toescape poor economic conditions. So, humancapital development has the effect of increasingnot only individual incomes; in a rapidlychanging economy, it also increases mobility.

Rural communities are poorly equipped toprovide job opportunities for individuals withcollege degrees. The flight of these educatedindividuals from rural communities erodes theproperty tax base, which serves as the majorsource of income for schools and other publicservices.

These stagnant economic conditions:inability to sustain incomes, insufficient taxbases, and limited opportunities for highly-



skilled or highly-educated individuals all stemfrom, among other factors, the inability to adaptto structural changes in the national economy. Itis abundantly clear that the agricultural sector isbecoming a less important economic entity inmany rural communities. Transformations of theagricultural sector of the rural economy havecreated major human resource problems. Failurein public response is due partly to the lack ofwell-organized, rural community institutionsstretching from local communities to the state,region, and nation, providing a voice for ruralsociety. This major transformation of rural areasis not well understood, and as a result is leftwithout a strategy to resolve critical problems.

Many local communities are turning toindigenous development strategies, such as theone in this study, of entrepreneurship-centeredeconomic development. With such strategies,public policy makers are preoccupied only withcreating an “enabling environment” for business.In this sense, market-oriented forces becomeimportant remedies for rural developmentproblems, as opposed to relying on the publicsector exclusively. But, the role of social capital(i.e., civic institutions, churches, clubs) isbecoming a major factor in fostering communitydevelopment.

For example, faith-based institutions canplay an important role in economic developmentof African-American rural communities. Manysocieties have been successful at bridging thesacred and the secular, and their customs andculture allow for the imtermingling of the two.Western societies, however, have“compartmentalized” these aspects of life andleave no room for much intermingling,understandably so. It is believed by some thatthis compartmentalization is problematic forseveral reasons, the most significant being theabsolute neglect of planners, researchers, andothers involved in economic development toconsider the role of faith-based institutions,specifically churches, in communitydevelopment efforts.

Early in the history of African-Americansin the South, churches were used as educationalfacilities and a vehicle for economic, political,and social empowerment. The church is still afacilitator for the attitudinal change andeducation needed for economic and humandevelopment. The church has a perspective thatis unique, considerably different from otherinstitutions in a community, an organization

(social capital) that has not been well recognizedor used by economic development strategists.

From the empirical findings of this andsimilar studies, it is clear that the general policyobjectives for these rural areas would be to:

• retain financial capital.• encourage in-migration or stem out-

migration by providing incentives toindividuals with high levels of humancapital.

• stimulate business development andeconomic growth.

The types of instruments or policy leversavailable would be:

• Capital subsidies• Improvement of infrastructure• Tax breaks and relaxed regulations

These policies should be directed towardentrepreneurs or existing private sectoremployees (Brown, 1997). This is a generalpicture of policy goals, levers, and targets5.However, a closer examination of the specificfactors determining the incidence of African-American business owners in rural areas and thesubsequent impacts on rural development inlocal communities is now in order.

The results of this study provide insightinto what factors can be used as policy levers inrural African-American communitydevelopment. The empirical results show theextent to which human capital, wealth creation,African-American population concentration,and social capital are influential in determiningblack business ownership in rural communities.



Endnotes

1) A region may be defined as "anhistorically evolved, contiguousterritorial society that possesses aphysical environment, a socioeconomic,political, and cultural milieu, and aspatial structure distinct from otherregions and major territorial units."(Rankin & Falk, 1991). All of theaforementioned pockets of poverty thatspan the American landscape sharethese common characteristics and areevidence of the geographicalconcentration of poverty in thiscountry.

2) Category two represents the vast bodyof studies on entrepreneurship indevelopment literature.

3) The environment, as a driving force, issignificant because it is the ecologicalsupport system for development.Whatever economic decision is mademust be done so with the environmentin mind.

4) Single female-headed households havethe highest rate of poverty because ofthe increased need for income resultingfrom the presence of children in thehome, inability to work full-time (or atall) due to child care responsibilitiesand the absence of additional earnerswithin the household. In 1992, thepercentage of black female-headedfamilies in the rural South was 54.7percent and 30.5 percent for their whitecounterparts.

5) The term policy target refers to thegroup, region, etc. that a policy isdirected toward.



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Ahiarah, Sol. “Black Americans' Business Ownership Factors: A Theoretical Perspective.” The Review ofBlack Political Economy 22 Fall (1993): 15-37.

Baer, Hans A. and Yvonne Jones. African-Americans in the South, Issues of Race, Class, and Gender. Athens:The University of Georgia Press, 1992.

Bates, Timothy M. Black Capitalism: A Quantitative Analysis. New York: Praeger Publishers, 1973.

———. Major Studies of Minority Business, A Bibliographic Review. Washington: Joint Center for Politicaland Economic Studies Press, 1993.

Bearse, Peter J. An Econometric Analysis of Minority. U.S. Department of Commerce, Minority BusinessDevelopment Agency, Washington, D.C., September (1993).

———. “An Econometric Analysis of Black.” The Review of Black Political Economy 12 Spring (1984):111-134.

Bowers, Douglas E. (ed.). Federal Programs. In Rural Conditions and Trends. 8 (1997).

Falk, William W., and Thomas A. Lyson. High Tech, Low Tech, No Tech: Recent Industrial andOccupational Change in the South. Albany: State University of New York Press, 1988.

Falk, William W., Clarence R. Talley, & Bruce H. Rankin. Life in the Forgotten South: The Black Belt.In Thomas A. Lyson and William W. Falk (eds.), Forgotten Places, Uneven Development in RuralAmerica. Lawrence: University Press of Kansas, 1995.

Fratoe, Frank A., “Rural Minority Business Development.” The Review of Black Political Economy 22 Fall(1993): 41-71.

Handy, John, and David H. Swinton. “The Determinants of the Rate of Growth of Black-OwnedBusinesses: A Preliminary Analysis.” The Review of Black Political Economy 12 Spring (1984): 85-110.

Killian, Molly S., and Thomas F. Hady. “What is the Payoff for Diversifying Rural Economies?” RuralDevelopment Perspectives 4 February (1988): 2-7.

Kraybill, David S. and Bruce A. Weber. “Institutional Change and Economic Development in RuralAmerica.” American Journal of Agricultural Economics December (1995): 1265-1270.

Leibenstein, Harvey. General X-Efficiency Theory and Economic Development. New York: OxfordUniversity Press, 1978.

National Research Council. A Common Destiny: Blacks and American Society. Washington, D.C.: NationalAcademy Press, 1989.

O'Hare, William. “Black Business Ownership in the Rural South.” The Review of Black Political Economy15 Winter (1990): 93-104.

Porter, Michael E. “The Competitive Advantage of the Inner City.” Harvard Business Review May-June(1995): 55-71.



Rogers, Carolyn C. The Economic Well-being of Nonmetro Children. Rural Development Research ReportNumber 82, U.S. Department of Agriculture, Economic Research Service, March 1991.

Ross, Peggy J. and Stuart A. Rosenfeld. “Human Resource Policies and Economic Development.” RuralEconomic Development in the 1980s: Prospects for the Future. U.S. Department of Agriculture,Economic Research Service, Rural Development Project Research Report 69, Washington, D.C.(1988): 333-357.

Rural Revitalization Task Force. “A Hard Look at USDA's Rural Development Programs.” A Report tothe Secretary of Agriculture, June 30, 1989.

Smith, Vern E. and Daniel Pedersen. “South Toward Home.” Newsweek 14 July 1997: 36-38.

Stack, Carol. Call to Home African-Americans Reclaim the South. New York: Basic Books, 1996.

Wimberly, Ronald C. and Libby V. Morris. Poverty, Rurality, and Race in Regional and NationalPerspective. In Robert Zabawa, et al. (eds.), Local Communities and Sustainable Development (1995):21-29.

Woodard, Michael D. Black Entrepreneurs in American Stories of Struggle and Success. New Brunswick:Rutgers University Press, 1997.

U.S. Bureau of the Census. Current Population Reports, Series P60-160, 163, 171, & 185: Poverty in theUnited States. Washington: GPO, various issues.

———. Current Population Reports, Series P60-184, 188: Money Income of Households, Families, and Personsin the United Sates. Washington: GPO, 1992.

———. Money Income of Households, Families, and Persons in the United States. Washington: GPO, 1993.

———. Current Population Reports, Series P23-80: The Social and Economic Status of the Black Population inthe United States: An Historical View, 1970-1978. Washington: GPO, 1978.

———. Survey of Minority-Owned Business Enterprise. Washington: GPO, 1987.

———. Survey of Minority-Owned Business Enterprise. Washington: GPO, 1992.

———. USA Counties 1996 on CD-ROM (machine readable data files). Washington: the Bureau, 1996.

———. 1990 Census of Population and Housing, Equal Employment Opportunity (EEO) File (machinereadable data files). Washington: the Bureau, 1992.

U.S. Department of Commerce. Economics & Statistics Administration. County and City Data Book: AStatistical Abstract Supplement. Washington: GPO, 1994.

———. County and City Data Book: A Statistical Abstract Supplement. Washington: GPO, 1996.

U.S. General Accounting Office. Rural Development Patchwork of Federal Programs Needs to beReappraised. Washington: GPO, 1994.

Voslee, W.B. (ed.). Entrepreneurship and Economic Growth. Pretoria: HSRC Publisher, 1994



Table 3.1: Percent of Persons Below Poverty Level in the South and the United Statesby Race and Residence

South

Metropolitan Nonmetropolitan

African-American White African-American White

1986 29.0 9.9 43.6 16.5

1987 30.3 10.1 44.2 14.8

1988 31.0 10.2 41.0 15.0

1989 28.3 10.2 40.2 14.3

1990 28.8 10.2 41.6 15.0

1992 32.1 8.8 40.2 15.0

United States

Metropolitan Nonmetropolitan

African-American White African-American White

1986 28.6 9.7 42.3 15.1

1987 30.7 9.6 44.1 13.7

1988 28.9 9.1 39.6 13.1

1989 29.6 9.2 40.8 13.5

1992 31.9 8.3 40.8 13.5



Table 3.2: Percent of Families Below Poverty Level by Type of Family for Selected Years

Year All Families Families with Families with 65 &Female Head Older Head

Black Whites Black White Black White

1982 33.0 9.6 56.2 27.9 29.4 7.3

1986 28.0 8.6 50.1 28.2 22.1 5.4

1989 27.8 7.8 46.5 25.4 19.6 5.3

1990 29.3 8.1 48.1 26.8 24.2 4.5

1993 31.3 9.4 49.9 29.2 22.6 5.2



Table 3.3: United States and Black Participation in the Ownership of American Businesses: Selected Statistics, 1972-1992

Year U.S. Pop. Total # of Gross Receipts Back # of Black Gross(000s) U.S. Bus. of U.S. Bus. Pop. Bus. Receipts

(000s) (000s) (000s) (000s) of BlackBus (000s $)

1972 209,896 12,978 2,495,000 23,465 188 5,5341977 220.239 14,741 4,384,000 25,122 231 8,6451982 232,188 14,546 6,842,000 27,508 339 12,4441987 243,308 18,351 10,208,000 29,325 424 19,7631992 255,419 20,498 12,214,000 31,659 621 32,197

Year U.S. Total Bus. Blacks Black Black Bus. Number BlackBus. Gross Rec. as % Bus. Gross Rec. of Black Bus.per per of U.S. as % as % of U.S. Bus. per Gross1,000 Cap ($) Pop. of U.S. Bus Gross 1,000 Rec. per

Bus. Receipts Persons Cap ($)

1972 61.83 11,885.21 11.18 1.45 0.22 8.00 235.851977 66.93 19,917.01 11.41 1.57 0.20 9.20 344.131982 62.65 29,468.79 11.85 2.33 0.18 12.33 452.361987 75.42 41,953.47 12.05 2.31 0.19 14.46 673.931992 80.25 47,819.29 12.39 3.03 0.26 19.61 1017.01



Table 3.4: Black Business Ownership Rate and Total Business Ownership Rate for the United States and 11 Southern States in 1992

State # of Black Rate* Total # Rate** Black Bus. Black Pop. Owned of Bus. as % of as % of

Bus. Total Bus. TotalState Pop.

Alabama 14,707 14.4 227,119 56.2 6.5 25.3Arkansas 5,738 15.3 159, 820 67.9 3.6 15.9Florida 40,371 22.9 1,000,542 77.3 4.0 13.6Georgia 38,264 21.9 425,118 65.6 9.0 27.0Louisiana 20,312 15.6 236,589 56.1 8.6 30.8Mississippi 14,067 15.4 135,497 52.7 10.4 35.6North Carolina 29,221 20.1 439,301 66.3 6.7 22.0South Carolina 18,343 17.6 197,330 56.6 9.3 29.8Tennessee 14,920 19.2 325,371 66.7 4.6 16.0Texas 50,008 24.7 1,256,121 74.0 4.0 11.9Virginia 26,100 22.4 391,451 63.3 6.7 18.8

United States 620,912 20.7 17,253,14 69.4 3.6 12.1

*Number of Black Businesses per 1,000 Black Persons:Black Bus. Ownership Rate = (Total # Black-owned businesses in state) X 1,000

(Total # of Black persons in state)

**Number of Businesses per 1,000 PersonsState Bus. Ownership Rate = (Total # Businesses in State ) X 1,000

(Total state population)



Table 3.5: Percent of African-American-Owned Businesses in the United States by Industry

1972 1977 1982 1987 1992Industry

Service 35.0 44.0 43.4 49.4 53.6

Agriculture, Forestry 2.2 2.2 1.4 8.7 1.6& Fishing

Construction 1.0 9.1 6.8 1.9 7.0

Manufacturing 2.0 1.8 1.2 8.7 1.7

Transportation 11.4 10.0 1.2 15.6 1.2&Public Utilities

Wholesale Trade 1.0 1.0 1.2 15.6 1.2

Retail Trade 19.0 24.0 24.8 16.4 14.0

Finance, Insurance 4.0 4.2 4.4 1.7 6.6& Real Estate



Table 4.1: Explanation of Beale Codes Beale Code Population Size and Adjacency to Metropolitan Area

0 Central counties of metro areas, population of 1 million or more

1 Fringe counties of metro areas, population of 1 million or more

2 Counties in metro areas, population between 250,000 and 1 million

3 Counties in metro areas, population of fewer than 250,000

4 Counties adjacent to a metro area, urban population of 20,000 or more

5 Counties not adjacent to metro area, urban population of 20,000 or more

6 Adjacent to metro area, urban population between 2,500 and 19,999

7 Not adjacent to a metro area, urban population between 2,500 and 19,999

8 Completely rural or fewer than 2,500 population, adjacent to a metro area

9 Completely rural or fewer than 2,500 population, not adjacent to a metro area



Table 4.2: Black Business Ownership Rates by Beale Code Category

Beale Code # of Counties Mean Black Maximum Minimum BlackBusiness Black BusinessOwnership Ownership OwnershipRate Rate Rate

0 5 24.6 35.1 17.31 7 12.8 15.3 9.42 30 18.3 28.3 11.33 16 15.7 19.5 10.24 15 14.2 20.5 8.85 12 15.6 24.9 8.96 59 14.4 24.3 9.07 35 14.5 27.7 8.08 9 21.5 32.1 12.69 8 17.6 39.8 15.0



Table 4.3: Correlation Matrix of Rural Counties

BUS HOM HS COL PROF PER INC BINC

BUS

HOM 0.51

HS 0.40 0.18

COL 0.06 0.01 -0.38

PROF -0.02 0.01 -0.34 0.68

PER -0.23 -0.68 -0.28 0.11 0.13

NC 0.46 0.59 0.64 -0.18 -0.14 -0.72

BINC 0.48 0.34 0.75 -0.09 -0.07 -0.42 0.82

POV -0.45 -0.36 -0.73 0.14 0.12 0.49 -0.85 -0.59

Table 4.4: Correlation Matrix of Urban Counties

BUS HOM HS COL PER PROF INC BINC

BUS

HOM 0.49

HS 0.12 0.42

COL 0.57 0.36 -0.21

PER -0.17 -0.51 -0.30 .13

PROF 0.54 0.46 -0.23 0.88 0.08

INC 0.64 0.56 0.33 0.42 -0.40 0.49

BINC 0.64 0.36 0.41 0.52 -0.23 0.55 0.85

POV -0.50 -0.18 -0.51 -0.27 0.26 -0.29 -0.78 -0.29



Table 4.5: Mean Values of Variables for Rural and Urban Counties

Variable Mean Mean(Rural counties) (Urban counties)

BUS 16.73 15.72HOM 10.61 14.94COL 143.83 148.02PER 21.66 25.6PROF 31.61 37.69BINC 5,714.72 6,138.04INC 18,872.00 22,072.00POV 0.39 0.37



Table 4.6: Results of Regression and Calculated Elasticities

Variable Coefficient Standard Error T-Stat P-Value

Intercept -15.3288* 5.7783 -2.653 0.0087URBAN 15.2341* 6.5837 2.314 0.0218HOM 0.5816* 0.1089 5.338 0.0001URBAN*HOM -0.4905* 0.1210 -4.053 0.0001HS 0.0613* 0.0220 2.788 0.0059URBAN*HS -0.0477** 0.0264 -1.808 0.0722COL 0.1355* 0.0637 2.126 0.0348URBAN*COL -0.0152 0.0710 -0.215 0.8302PER 16.6162* 5.4616 3.042 0.0027URBAN*PER -14.3040* 6.5955 -2.169 0.0314INC 0.0003 0.0003 1.267 0.2067URBAN*INC 0.0000 0.0003 0.168 0.8667

Adjusted R2 0.4751F Statistic 17.120 (0.0001)Mean of BUS 15.99* < 0.05 level of Significance** < 0.10 level of SignificanceDW Stat 1.764

Calculated Elasticities

RURAL URBAN

εHOM 0.3690 0.0866εHS 0.5270 0.1281εCOL 0.1754 0.2184εPER 0.4681 0.0579εINC 0.3384 0.4212



Figure 2.1: Porter Structural Attractiveness Model for Economic Development

Old Model For Development New Model For Development

Focus: Social Focus: Economic

Goal: Redistribute Wealth Goal: Create Wealth

Emphasis: Emphasis:

• Government, Social Organization • Private Sector

• Subsidized Business • Profitable Business

• Isolation from Larger Economy • Integration with Regional Economy

• Companies Serve Local Community • Export Oriented Companies

• Skilled Minorities Engaged in Social • Skilled & Experienced MinoritiesService Sector Engaged in Building Business

• Special Institutions Created • Mainstream, Private SectorInstitutions Enlisted

• Disadvantages Counterbalanced with • Disadvantages Addressed DirectlySubsidies

• Government Involved Directly • Government Focused onProviding Services or Funding Improving Environment for

Business





1900 1910 1 92 0 1930 1 94 0 1950 1960 1970 1980 1 99 0 1992 1994

0

10

2 0

3 0

4 0

5 0

6 0

7 0

8 0

9 0

Perc

ent

Year

Figure 3.1.1: African American Population in the South by Residence

RuralTotal

1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 1991 1993

0

2

4

6

8

10

12

14%

Year

Figure 3.1.2 : African American Population in the U. S. by Residence

% Rural% of U.S. Population



Figure 3.2: U.S. Poverty Level By Race

0

1 0

2 0

3 0

4 0

5 0

6 0

19

59

19

61

19

63

19

65

19

67

19

69

19

71

19

73

19

75

19

77

19

79

19

81

19

83

19

85

19

87

19

89

19

92

Year

Perc

ent

WhiteUnited StatesAfrican American

Figure 3.3.1: U. S. Educational Attainment by Race: Four or More Years of High School Completed

(Persons 25 years and older)

0

10

20

30

40

50

60

70

80

90

100

65 67 69 71 73 75 77 79 81 83 85 87 89 91 93 Year (19”)

%

AfricanAmericanWhite



Figure 3.3.2: U.S. Educational Attainment by Race:Four or More Years of College Completed

(Persons 25 years & older)

0

5

10

15

20

25

1965 1967 1969 1971 1973 1975 1977 1979 1981 1983 1985 1987 1989 1991 1993

Year

%

African AmericanWhite

Figure 3.3.3: Educational Attainment in the South by Race:Completed High School Persons 25 & older)

33

33.5

34

34.5

35

35.5

36

36.5

37

37.5

38

1988 1989 1990 1991

Year

%




Figure 3.3.4: Educational Attainment in the South by Race:

Four or More Years of College Completed Persons 25 years& older)

0

5

10

15

20

25

1988 1989 1990 1991 1993 1994

Year

%




Y Y

X XConcurrent Regressions Parallel Regressions

Y Y

X XConcurrent Regressions Dissimilar Regressions

Figure 4.5.1: Types of Relationships Between Two Regression Models

Documents

Entrepreneurship-Centered Economic … Economic Development: An Analysis of African American Entrepreneurship in the Southern Black Belt Ralph D. Christy and Wylin DassieAuthors: Ralph