Methods of analyzing the relationship between new business formation and regional development

Abstract

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The effect of new business creation on employment growth in regions facing population decline

“…1 shows, the impact of new firms on employment growth is not stable over time, with immediate positive effects being followed by short-term negative effects and again by long-term positive effects. Both positive and negative impacts on employment growth are therefore likely to occur, depending on the time lag of the start-up cohort and a number of studies have confirmed this short-, mediumand long-term pattern (Storey 1994;Fritsch andNoseleit 2009, 2013a, b;Andersson and Noseleit 2011;Koster 2011;Li et al 2011). Fritsch (2008) When new businesses enter a market, they may have both direct and indirect effects on employment development (Fritsch and Mueller 2004).…”

“…For the purpose of this study, we are mainly concerned with the impact of start-up rates on employment change. However, given that the opposite relationship can be expected to hold as well, a one directional analysis could lead to biased results, overestimating the effect of start-ups if not estimated simultaneously (Fritsch 2015). A number of studies have attempted to disentangle this relationship, most extensively that by Hartog et al (2010) who provide an overview of studies examining this issue and they only find a weak effect of growth in previous periods on the level of new business formation.…”

“…A number of studies have attempted to disentangle this relationship, most extensively that by Hartog et al (2010) who provide an overview of studies examining this issue and they only find a weak effect of growth in previous periods on the level of new business formation. Also Fritsch (2015) concludes that the causality runs primarily from business creation to employment growth rather than the other way around. Still, we performed a Granger causality test to verify the direction of causality.…”

“…Using a similar method will help to make the outcome more comparable to previous results. We therefore follow the method by Fritsch and others (Fritsch et al 2008;Fritsch andNoseleit 2009, 2013b). The regressions are run with three different dependent variables: total employment change, employment change in new firms and employment change in incumbent firms.…”

Metropolitan Innovation in the New Economy

“…Numerous observers claim these indirect effects-costs reductions, the departure of inefficient firms, new products and processes, and greater variety in goods and services-are critical because they promote competitiveness on the supply side of the market and thereby induce further economic development [50,51]. Baumol et al [52] claim that entrepreneurial capitalism (radical innovations, marketing new products) and big-firm capitalism (incremental innovations, scale economies for old products) are both indispensable to the operation of advanced economic systems.…”