Are More Start-Ups Really Better? Quantity and Quality of New Businesses and Their Effect on Regional Development
AbstractEmpirical analyses suggest that the employment creating effect of start-ups is highest in regions with a low level of new business formation and that an increase in the regional start-up rate beyond a certain level may lead to negative employment effect. In explaining these results, we assume that the average quality of regional start-ups decreases with the number of start-ups, while the costs of the induced resource reallocation increase. Our model implies that it is not the number of start-ups but their quality that is decisive for their effect on economic development. Therefore, a policy aiming at stimulating economic growth through entrepreneurship should focus on high-quality start-ups.
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Bibliographic InfoPaper provided by Friedrich-Schiller-University Jena, Max-Planck-Institute of Economics in its series Jena Economic Research Papers with number 2009-070.
Date of creation: 13 Aug 2009
Date of revision:
Entrepreneurship; new business formation; regional development; entrepreneurship policy;
Find related papers by JEL classification:
- L26 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Entrepreneurship
- M13 - Business Administration and Business Economics; Marketing; Accounting - - Business Administration - - - New Firms; Startups
- O1 - Economic Development, Technological Change, and Growth - - Economic Development
- O18 - Economic Development, Technological Change, and Growth - - Economic Development - - - Urban, Rural, Regional, and Transportation Analysis; Housing; Infrastructure
- R11 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Regional Economic Activity: Growth, Development, Environmental Issues, and Changes
This paper has been announced in the following NEP Reports:
- NEP-ALL-2009-08-22 (All new papers)
- NEP-ENT-2009-08-22 (Entrepreneurship)
- NEP-GEO-2009-08-22 (Economic Geography)
- NEP-SBM-2009-08-22 (Small Business Management)
- NEP-URE-2009-08-22 (Urban & Real Estate Economics)
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