Investigating the anatomy of the employment effect of new business formation

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

“…Increased variety due to new products may intensify the division of labor, as well as follow-up innovation, and, therefore, may generate significant economic development (Boschma, 2004;Saviotti and Pyka, 2004). Greater variety may have the further effect of diversifying the regional industry structure and the respective knowledge base, thus making the region more resilient to external shocks (Boschma and Frenken, 2011 (Caves, 1998;Disney, Haskell, and Heden, 2003;Mueller, 2004, 2008;Fritsch and Noseleit, 2012b) If, however, market selection is not working as it should and allows the survival of relatively unproductive competitors, the economy's competitiveness will decline and there may be negative supply-side effects.…”

“…To identify indirect effects of new business formation on employment, Fritsch and Noseleit (2012b) 8 Moreover, most of the available approaches that analyze the effects of entrepreneurship in a production function framework are based on cross-section estimates and therefore may neglect the effect of region-specific factors on growth that are not explicitly taken into account. Hence, a fixed-effects panel approach that controls for such unobserved regional effects may lead to quite different estimates of how much entrepreneurship contributes to economic development.…”

“…Figure 4: Impact of start-ups on regional employment change-direct and indirect effects (Fritsch and Noseleit, 2012b) Applying the decomposition procedure described above, the lag pronounced indirect effects that were strongest for start-ups in manufacturing, followed by start-ups in low-end services, with high-end service industries bringing up the rear.…”

“…Most such analyses distinguish between regions with high population density (agglomerations) and less populated or rural areas (e.g., Baptista and Preto, 2011;van Stel and Suddle, 2008). Other types of regions analyzed include those with relatively high and relatively low levels of labor productivity (Fritsch and Mueller, 2008), regions with high and low levels of new business formation (Fritsch and Noseleit, 2012b), regions with relatively high and relatively low shares of small business employment, and regions with relatively high and relatively low similarity of industry structure between newcomers and incumbents (Fritsch and Noseleit, 2012a and the impact that these potential determinants of regional growth may have through new business formation activity.…”

Local Competitiveness Fostered through Local Institutions for Entrepreneurship

“…The entrepreneur, Schumpeter claimed, is particularly important in inducing structural change because she challenges existing economic structures through innovations that disturb current market equilibria. A large empirical research literature has also shown that small entrepreneurial firms and startups are important in bringing in new technology and innovations (Baumol 2002;Audretsch 2002;Schneider and Veugelers 2010), in influencing innovation and productivity of incumbents (Aghion et al 2004(Aghion et al , 2009) and in stimulating overall productivity and employment growth (Fritsch and Mueller 2004;Fritsch and Noseleit 2013;Andersson, Braunerhjelm and Thulin 2012). It follows that "local competitiveness", as defined above, hinges to a large extent on the environment for entrepreneurship.…”