The geography of new firm formation: Evidence from independent start-ups and new subsidiaries in the Netherlands

Abstract

This paper investigates to what extent determinants of the rate of independent start-ups and the rate of new subsidiaries are different. Using a regional database for the Netherlands over the period 1988-2002, we investigate the impact of two types of agglomeration effects, localization and urbanization, while controlling for a range of economic variables. We find urbanization economies to be particularly important for the creation of new subsidiaries while localization economies are more important for the creation of independent new ventures. Finally, the effect of agglomeration variables is found to be stronger for manufacturing industries compared to services industries.

Regional determinants of the small and medium size manufacturing firm entry in a developing country: evidence from Turkey

“…Although previous studies show that there is a strong positive effect of population growth rates (PopGrow) on new firm formation rates (Acs & Armington, 2002, 2004Audretsch & Fritsch, 1994;Bosma et al, 2008, Davidsson et al, 1994Keeble & Walker, 1994;Okamura & Kobayashi, 2006;Reynolds, 1994), this paper finds no significant effect of PopGrow. The possible reason could be that one-year lag may be insufficient as Bosma et al (2008) suggests using two-year lag periods. Unemployment rates (LogUnemp) have also an insignificant effect on new firm formation.…”

“…Following Bosma, Van Stel, and Suddle (2008) regional factors can be divided into four categories: (i) demand and supply variables; (ii) industry agglomeration; (iii) structure of the industry; and (iv) entrepreneurship culture. An expansion in regional market demand for various goods and service are considered as one of the fundamental influences encouraging self-employment (Reynolds, 1994;Reynolds et al, 1994).…”

“…Wage is the cost of hiring a worker for potential entrepreneurs. Higher wages as a supply variable means a higher opportunity cost and a higher cost of hiring a worker which may be expected to deter potential entrepreneurs from starting up a business (Bosma et al, 2008;Fritsch, 1992;Okamuro & Kobayashi, 2006;Santarelli, Carree, & Verheul, 2009;Wang, 2006). Moreover, unemployment as a supply-side variable encourages people to start their own businesses as the opportunity cost of being self-employed is likely to decrease for unemployed individuals with low prospects of paid employment (Choi & Phan, 2006;Davidsson, Lindmark, & Olofsson, 1994).…”

“…There exists a huge literature discussing to what extent agglomeration economies exist. It is suggested that the level agglomeration effect may depend on the degree of localization (firms in similar sectors) and urbanization economies (firms in different sectors) (Bosma et al, 2008;Fotopoulos & Spence, 1999). However, irrespective of the which case appears, agglomeration can make a region less attractive for potential entrepreneurs as if many firms are located close to each other, the price of production factors including wages, land use, etc increases (Arauzo-Carod & Teruel-Carrizosa, 2005;Nystrom, 2005).…”

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

“…The municipal level is preferred for two reasons. First, as new business creation is often a local phenomenon (Dahl and Sorenson 2012;Sternberg 2011), new businesses are likely to be located in the home region primarily serving local and regional markets and are therefore heavily influenced by local conditions (Bosma et al 2008;Stam 2009). Compared to other countries, the commuting patterns of workers in the Netherlands are relatively short (OECD 2013), and municipalities do indeed play an important role in shaping labour markets, housing and unemployment policies (Knoben et al 2011).…”