We investigate the effects of new business formation on employment change in German regions. A special focus is on the lag-structure of this effect and on differences between regions. The different phases of the effects of new business formation on regional development are relatively pronounced in agglomerations as well as in regions with a high-level of labor productivity. In lowproductivity regions, the overall employment effect of new business formation activity might be negative. The interregional differences indicate that regional factors play an important role.Keywords Entrepreneurship Á New business formation Á Regional development Á Germany JEL Classifications M13 Á O1 Á O18 Á R11 Á O12 Á L26
Aims and scopeRecent studies have shown very clearly that the impact of new business formation on regional development is distributed over a longer period of time (Audretsch and Fritsch 2002; Mueller 2004, 2006;van Stel and Storey 2004). Moreover, these studies revealed pronounced differences in the magnitude of the effect across regions. This paper extends our earlier work on the impact of new business formation on regional development in Germany Mueller 2004, 2006) in analyzing regional differences in much more detail. In contrast to our earlier study, we perform the analysis on the level of planning regions instead of districts as spatial units. Planning regions may be better suited as units of analysis because they account for economic interaction between districts. For this reason, the analysis is less likely to be subject to spatial autocorrelation.The following section gives a brief overview of the main evidence found by earlier investigations of the effect of new business formation on economic
123Small Bus Econ (2008) 30:15-29 DOI 10.1007 development in Germany. Section 3 addresses data and measurement issues. The analysis of the short-, medium-, and long-term impact of new business formation on regional employment is reported in Sect. 4. Differences in the effects across regions are investigated in Sect. 5. The final section draws conclusions for policy as well as for further research.2 New business formation and regional development in Germany-an overview of the empirical studiesThe first empirical analyses of the employment effects of new business formation with comprehensive data from the German economy followed a 'job-turnover' approach (Cramer and Koller 1988; Boerie and Cramer 1992, Gerlach andWagner 1993; Koenig and Weißhuhn 1990a, b). A main shortcoming of these analyses is that only the initial employment of the start-ups in their first year is counted as their contribution to employment. The development of start-ups in the following years was assigned to the incumbents. Therefore, these studies do not allow the assessment of the longer-term effects of new businesses on development, which are probably much more important than the initial employment effect around the time of start-up (Fritsch 2007). The analyses of the short-term effect of start-ups indicated that employment gains due...