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Appetite for destruction: the impact of the September 11 attacks on business founding

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  • Srikanth Paruchuri
  • Paul Ingram
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    Abstract

    It is widely accepted that entrepreneurial creation affects destruction, as new and better organizations, technologies and transactions replace old ones. This phenomenon is labeled creative destruction, but it might more accurately be called destructive creation, given the driving role of creation in the process. We reverse the typical causal ordering, and ask whether destruction may drive creation. We argue that economic systems may get stuck in suboptimal equilibria due to path dependence, and that destruction may sweep away this inertia, and open the way for entrepreneurship. To test this idea, we need an exogenous destructive shock, rather than destruction that is endogenous to the process of economic progress. Our identification strategy relies on the September 11 attacks as an exogenous destructive shock to the economic system centered on New York City. Consistent with our theoretical claim, we find that 15 months after the attacks the rate of business founding close to New York City exceeds the rate before the attacks, even after controlling for the inflow of recovery funds. Furthermore, the increase in the business founding rate after the attacks grows faster closer to Manhattan than it does further away from the epicenter of destruction. Copyright 2012 The Author 2012. Published by Oxford University Press on behalf of Associazione ICC. All rights reserved., Oxford University Press.

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    Bibliographic Info

    Article provided by Oxford University Press in its journal Industrial and Corporate Change.

    Volume (Year): 21 (2012)
    Issue (Month): 1 (February)
    Pages: 127-149

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    Handle: RePEc:oup:indcch:v:21:y:2012:i:1:p:127-149

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    Cited by:
    1. Martin Henning & Erik Stam & Rik Wenting, 2013. "Path Dependence Research in Regional Economic Development: Cacophony or Knowledge Accumulation?," Regional Studies, Taylor & Francis Journals, vol. 47(8), pages 1348-1362, September.
    2. Michael Wyrwich, 2013. "Ready, set, go! Why are some regions entrepreneurial jump-starters?," Jena Economic Research Papers 2013-037, Friedrich-Schiller-University Jena, Max-Planck-Institute of Economics.

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