🤖 AI Summary
This study examines the causal impact of government-funded consulting services on small business performance in the United States, addressing endogeneity arising from self-selection. Leveraging administrative data from Northern California’s Small Business Development Centers (SBDCs) between 2006 and 2023, the authors exploit exogenous variation in geographic proximity induced by the opening and closing of service centers to construct a proximity-based instrumental variable. This quasi-experimental design yields the first causal estimates of consulting duration on firm revenue and employment. The findings indicate that a 20-mile reduction in distance to an SBDC increases annual consulting time by 0.15 hours, and each additional hour of consulting raises annual revenue by 3.6–5.2% and employment by 1.6–2.9%. These results demonstrate the substantial cost-effectiveness of localized professional services and underscore the critical role of physical proximity in effective policy implementation.
📝 Abstract
This paper studies the impact of geographic proximity to and utilization of publicly funded advisory services offered to US small businesses on firm take-up and performance. We leverage a novel administrative dataset from the Northern California Small Business Development Center (SBDC) Network covering all firm-center interactions from 2006-23. To address endogeneity in firm engagement with centers, we exploit exogenous variation in center-firm geographic proximity generated by center closures and openings. We instrument for paired center-firm consulting time with changes in distance resulting from these organizational shifts. A one standard deviation reduction in distance between a firm and corresponding center (20 miles) increases expected annual consulting time by 0.15 hours (7.5%); each additional consulting hour raises average firm annual revenue and employment by 3.6-5.2% and 1.6-2.9%, respectively. Back-of-the-envelope calculations suggest advisory services are cost-effective. This study provides novel causal evidence on take-up and effectiveness of small business advisory services in the US using quasi-experimental variation in geographic proximity. Our findings highlight the importance of both physical distance and localized expertise in shaping small business outcomes.