by James W. Meehan, Jr., Joe Peek, and Eric S. Rosengren
November/December 1993

During the 1980s, the New England economy prospered relative to the nation as a whole, with lower unemployment rates, more rapidly rising real estate prices, and lower rates of business failures. As the economic tide turned against New England at the end of the decade, the rate of business failures soared, in absolute terms as well as relative to nationwide statistics. This recent wave of business failures appears to have been far in excess of that attributable to the decline in New England economic activity. Moreoever, it has undesirable implications for the regional economy and can be expected to slow economic recovery in the area. The authors explore several explanations for the increase in business failures, including employment losses, industry mix effects, and credit availability. Their findings suggest that difficulties in the banking sector have contributed significantly to the very high rate of business failures in New England

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