Employment from new firm formation in the Netherlands: Agglomeration economies and the Knowledge Spillover Theory of Entrepreneurship

Abstract

Within the recent literature on the geography of new firm formation, much attention is given to the role of regional knowledge sources based on the Knowledge Spillover Theory of Entrepreneurship. At the same time, several other studies show the importance of agglomeration economies for new firm formation. The goal of this study is to assess the relative importance of these determinants for differences in the share of employment creation from new firms at the level of municipalities for the period of 1999-2006 in the Netherlands. It is found that the traditional drivers of new firm formation, such as economic growth and agglomeration effects, have a much stronger effect on new firm formation compared to measures of the regional knowledge base. Moreover, it is shown that when not correcting for the presence of agglomeration effects, the role of local knowledge resources is easily over-estimated, pointing to the dangers of misspecifications of models. The results imply that the knowledge spillover theory of entrepreneurship should, at least for the Netherlands, not be exaggerated.

Inbound foreign direct investment and domestic entrepreneurial activity

“…Studies showing negative associations between inbound FDI and entrepreneurship typically explain that crowding effects reduce overall domestic entrepreneurship. By contrast, studies that show positive associations argue that knowledge spillovers facilitate more entrepreneurship Ayyagari and Kosová 2010;Knoben, Ponds, and van Oort 2011). This begs the question: which explanation is correct?…”

“…The study of trade's positive effects on entrepreneurship suggests that inbound FDI increases rates of indigenous entrepreneurship through the mechanism of knowledge spillovers (Knoben et al 2011). Foreign firms bring new products to the market, which creates new opportunities for local entrepreneurs to form new ventures to distribute them.…”

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

“…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). Second, a small spatial scale allows us to identify the declining regions and to understand specific local issues in the Netherlands (OECD 2008).…”

“…We also control for income developments. A change in regional income entails a change in potential regional demand, which prompts higher levels of employment from new business creation (Audretsch and Fritsch 1994;Knoben et al 2011). Finally we control for sector structure (Baptista et al 2005;Van Stel and Storey 2004) and to cope with the data limitation of systematic differences across the collection agencies, we use a dummy variable for the 20 agencies.…”

The impact of urban con centration on countries’ competitiveness and entrepreneurial performance

“…Also, findings from empirical studies indicate the positive effect of urban concentration on entrepreneurial performance mainly measured by new firm formation rates. Highly populated urban areas offer more opportunity for entrepreneurial success, because they can provide firms with a large consumer base, relatively cheap physical infrastructure, tacit knowledge, special services or a skilled workforce., therefore new firms prefer highly urbanized areas (Reynolds et al 1994, AcsArmington 2004, Van Stel-Suddle 2008, Knoben et al 2011.…”