A Place for Area-Based Policy? The Survival and Growth of Local Firms in Dutch Residential Neighborhoods

Abstract

Although their market scope often exceeds the neighborhood level, for most entrepreneurs of small‐scale firms the neighborhood is the relevant arena for both their professional activities and their personal affairs. Dutch local economic policy aims to stimulate new firm formation and firm survival in (disadvantaged) neighborhoods by conditioning economic, social, and physical aspects of the neighborhood such as economic zoning and clustering, livability, and the quality of the built‐up area. Although substantial differences in firm success exist across neighborhoods, it is not clear whether area‐level factors contribute to these differences, suggesting that area‐level policies are useful, or whether differences are due to either urban effects or to microlevel entrepreneurial and firm composition effects. This article distinguishes neighborhood effects from composition effects on local firm survival and firm growth, thereby also taking into account spatial dependence across neighborhoods. Our results suggest that aspects of the local livability of neighborhoods and of economic agglomeration are significantly related to individual firm survival and firm growth. The models provide proof for spillover effects of livability problems and market potential between adjacent neighborhoods. Neighborhoods and cities are therefore potentially places for area‐based policies, aiming at the survival and growth of local firms.

Local Disorder and the Success of Firms in Residential Neighbourhoods

“…Raspe et al (2010) also show that local deterioration is negatively related to the number of new firms in a neighbourhood. Sleutjes et al (2012a) have provided evidence for a negative effect of the perceived level of insecurity on employment growth of local consumer services firms again, this effect is absent for other local firms. In addition, a large share of local green space is positively related to the growth of consumer-service firms.…”

“…Because spending power varies considerably across urban neighbourhoods (as a result of income differences and income segregation), firms that depend on their local customer market perform better in more affluent neighbourhoods than in neighbourhoods that are relatively poor. E.g., Sleutjes et al (2012a) show that employment growth in consumer services firms is positively related to local population size and its average age, income and education levels, whereas those effects are absent for local firms in the business service sector. Other empirical studies in the Netherlands confirm this result for shops and eating and drinking establishments: locally oriented firms in disadvantaged districts perform worse than competitors that are not primarily oriented towards the local customer Brought to you by | MIT Libraries Authenticated Download Date | 5/10/18 7:08 AM market (Aalders et al, 2008;Bulterman et al, 2007).…”

“…In addition, a large share of local green space is positively related to the growth of consumer-service firms. Counter-intuitively, Sleutjes et al (2012a) have found a positive relation between firm success and property crime, and violence and harassment, which may be due to reversed causality because specific economic activities also attract crime and nuisance. A follow-up study on a smaller number of neighbourhoods, which also includes the social aspects of neighbourhoods, shows that controlling for other factors, employment growth in local retail firms benefits from a strong local community, i.e., many contacts between neighbours and high levels of interpersonal trust among local residents (Sleutjes et al, 2012b).…”

“…Empirical studies on the effects of neighbourhood liveability on firm performance by Raspe et al (2010) and Sleutjes et al (2012a) suggest that local (dis)order is especially significant for firms that are active in local economic sectors, such as retail or eating and drinking establishments. These scholars assume that this phenomenon is a consequence of the dependence of such firms on their local markets and the quality of nearby public spaces because such businesses need customers to actually visit them.…”

“…First, we look beyond the traditional entrepreneur-and firm-level determinants of local firm performance by including social and physical disorder conditions 1 at the local level (cf. Sleutjes et al, 2012aSleutjes et al, , 2012bFolmer, 2014), which in this research are areas that on average include 1 Social disorder and physical disorder are not the same. We combine both types of disorder in this research, because they show overlap, are strongly interrelated, and because separate measures of social and physical disorder correlate too strongly to be justifiably separated (see also Sleutjes 2012).…”