Michael Fritsch () (Friedrich Schiller University Jena, School of Economics and Business Administration) Alexandra Schroeter () (Friedrich Schiller University Jena, School of Economics and Business Administration)
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Empirical 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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Paper provided by Friedrich-Schiller-University Jena, Max-Planck-Institute of Economics, Thueringer Universitaets- und Landesbibliothek in its series Jena Economic Research Papers in Economics with number
2009-070.