Externalities or Experience? Localization Economies and Start‐up Business Survival

Abstract

This study examines whether spatial variations in the human capital of business owners help explain why the failure rates of new businesses tend to be lower in areas where similar businesses are concentrated. More specifically, I test whether the prior industry experience of the firm's owner/founder has a mediating influence on the relationship between industrial localization and new business failure for six industry sectors. Localization is found to have either a beneficial or a damaging relationship to new firm survival, depending on the industry in question. Localization reduces the likelihood of failure in two sectors, while competition effects prevail in two others. When industry experience is added to the models, the benefits of localization diminish, but only for entrants in the business, professional, and information services sector and only by a small amount. This suggests that at least some of the observed benefits of localization are due to regional differences in embodied human capital, but localization economies remain significant. Further study is needed to see if such mediating effects are common among a wider array of more narrowly defined industries and for other forms of entrepreneurial human capital.

Entrepreneurship and the determinants of firm survival within regions: human capital, growth motivation and locational conditions

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‘Ready for Take‐off’: How Open Innovation influences startup success

“…A third approach focuses on the environmental perspective. Besides the classical ecological approach (Renski, ), studies on the role of supporting environments test the influence of a set of exogenous factors on new venture success. Examples include: the availability of venture capital (Baum & Silverman, ); the characteristics and the length of the gestation process (Reynolds & Miller, ); the degree of turbulence and the risk of the market (Gartner & Liao, ; van Gelderen et al, ).…”

Interaction effects between the agglomerative externalities affecting the survival of small startups

“…A mixed effects Cox model was employed as the empirical analysis model, being based on a semiparametric approach that does not previously define a particular formal probability distribution . The Cox model was widely used in studies on firm survival (Pe'er & Keil ; Renski, , ; Ryu et al, ; Sohns & Diez, ; Tavassoli & Jienwatcharamongkhol, ; Yi, ), and a mixed effects Cox model applied to this study is an advanced form of the conventional Cox model. The equation of the mixed effects Cox model including both fixed and random effects can be expressed as follows:…”

“…A mixed effects Cox model was employed as the empirical analysis model, being based on a semiparametric approach that does not previously define a particular formal probability distribution. 3 The Cox model was widely used in studies on firm survival (Pe'er & Keil 2013;Renski, 2011Renski, , 2015Ryu et al, 2014;Sohns & Diez, 2019;Tavassoli & Jienwatcharamongkhol, 2016;Yi, 2016), and a mixed effects Cox model applied to this study is an advanced form of the conventional Cox model. The equation of the mixed effects Cox model including both fixed and random effects can be expressed as follows: where λ(t) is the hazard function of individual i at time t; λ 0 (t) is an unspecified baseline hazard function; X is a fixed effect matrix; Z is a random effect matrix; and β and b indicate the vectors of fixedeffects coefficients and random effects, respectively.…”