A dozen states have overtaken California in terms of gross state product growth in the past few years. Difficulties in the small business sector are part of the reason.

"There's some pessimism out there," said Scott Hauge, president of Small Business California. "Small businesses do not feel they are doing so well."

According to the Bureau of Economic Analysis, California grew the fourth-fastest among the 50 states from 1997 to 2004, averaging a yearly 4.4 percent. Top-ranked Arizona achieved slightly more, 5.2 percent.

By 2005, California slipped to 17th place in gross state product, or GSP, growth, although its pace changed little, growing at 4.3 percent. Others, however, zoomed past at more than twice that rate. Improvements were most visible in Nevada, which registered a breakneck growth rate at 9 percent.

The Small Business Administration's Office of Advocacy believes that small businesses have something to do with that. The SBA has recently received the results of a study it commissioned, showing that the success rate of small businesses has a direct impact on states' economic expansion.

In the study, based on 14 years of data, researchers showed that "small firm (...) births have a larger impact than any other factor on GSP. Economic growth will be faster when the net small firm establishment birth rate is positive."

Meaning, if more small firms are opened than closed, the state will grow faster.


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California is in the middle of the pack in terms of the expansion of the small business sector, according to the Business Information Tracking Series at the Census Bureau. About 9,000 more businesses opened than closed in this state in 2003, the last year for which data was available. That's a growth rate of about 1.5 percent. That year, California's GSP grew by 5.2 percent. Nevada, meanwhile, outpaced California three times, adding 4.7 percent to its small business lineup. The same year, its GSP expanded by 9.5 percent.

Another state scoring highs was Florida, which added 10,000 new businesses, a larger number than any other state. There, the state economy grew at 6.5 percent.