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Are More Start-Ups Really Better? Quantity and Quality of New Businesses and Their Effect on Regional Development

Author

Listed:
  • Michael Fritsch

    (Friedrich Schiller University Jena, School of Economics and Business Administration)

  • Alexandra Schroeter

    (Friedrich Schiller University Jena, School of Economics and Business Administration)

Abstract

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.

Suggested Citation

  • Michael Fritsch & Alexandra Schroeter, 2009. "Are More Start-Ups Really Better? Quantity and Quality of New Businesses and Their Effect on Regional Development," Jena Economics Research Papers 2009-070, Friedrich-Schiller-University Jena.
    • Handle: RePEc:jrp:jrpwrp:2009-070
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    File URL: https://oweb.b67.uni-jena.de/Papers/jerp2009/wp_2009_070.pdf
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    Citations

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    Cited by:

    1. Marcus Dejardin & Michael Fritsch, 2011. "Entrepreneurial dynamics and regional growth," Small Business Economics, Springer, vol. 36(4), pages 377-382, May.
    2. Kent Eliasson & Hans Westlund, 2013. "Attributes influencing self-employment propensity in urban and rural Sweden," The Annals of Regional Science, Springer;Western Regional Science Association, vol. 50(2), pages 479-514, April.
    3. Florian Noseleit, 2013. "Entrepreneurship, structural change, and economic growth," Journal of Evolutionary Economics, Springer, vol. 23(4), pages 735-766, September.
    4. Michael Fritsch & Sebastian von Engelhardt, 2010. "Who Starts with Open Source? Institutional Choice of Start-Ups in the German ICT Sector," Jena Economics Research Papers 2010-049, Friedrich-Schiller-University Jena.
    5. Michael Fritsch & Alexandra Schroeter, 2011. "Does Quality Make a Difference? Employment Effects of High- and Low-Quality Start-Ups," Jena Economics Research Papers 2011-001, Friedrich-Schiller-University Jena.
    6. Sarah Kösters & Martin Obschonka, 2011. "Public Business Advice in the Founding Process: An Empirical Evaluation of Subjective and Economic Effects," Environment and Planning C, , vol. 29(4), pages 577-604, August.
    7. Jaap W. B. Bos & Erik Stam, 2014. "Gazelles and industry growth: a study of young high-growth firms in The Netherlands," Industrial and Corporate Change, Oxford University Press and the Associazione ICC, vol. 23(1), pages 145-169, February.
    8. Bruno Fischer & Paola Rücker Schaeffer & Sérgio Queiroz, 2019. "High-growth entrepreneurship in a developing country: Regional systems or stochastic process?," Contaduría y Administración, Accounting and Management, vol. 64(1), pages 59-60, Enero-Mar.
    9. Sarah Kösters, 2010. "Subsidizing Start-Ups: Policy Targeting and Policy Effectiveness," Journal of Industry, Competition and Trade, Springer, vol. 10(3), pages 199-225, September.
    10. Gaofetoge Ntshadi Ganamotse & Mikael Samuelsson & Ruth, M. Abankwah & Tibaingana Anthony & Thuso Mphela, 2017. "The Emerging Properties of Business Accelerators: The Case of Botswana, Namibia and Uganda Global Business Labs," Journal of Entrepreneurship and Innovation in Emerging Economies, Entrepreneurship Development Institute of India, vol. 3(1), pages 16-40, January.
    11. Bos, J.W.B. & Stam, E., 2011. "Gazelles, industry growth and structural change," Research Memorandum 018, Maastricht University, Maastricht Research School of Economics of Technology and Organization (METEOR).
    12. László Szerb & Éva Komlósi & Balázs Páger, 2016. "Measuring Entrepreneurship and Optimizing Entrepreneurship Policy Efforts in the European Union," ifo DICE Report, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 14(03), pages 08-23, October.
    13. László Szerb & Éva Komlósi & Balázs Páger, 2016. "Measuring Entrepreneurship and Optimizing Entrepreneurship Policy Efforts in the European Union," ifo DICE Report, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 14(3), pages 08-23, October.
    14. Szerb Laszlo A. & Acs Zoltan & Autio Erkko, 2013. "Entrepreneurship and Policy: The National System of Entrepreneurship in the European Union and in Its Member Countries," Entrepreneurship Research Journal, De Gruyter, vol. 3(1), pages 9-34, January.
    15. Ioannis Giotopoulos & Alexandra Kontolaimou & Aggelos Tsakanikas, 2017. "Drivers of high-quality entrepreneurship: what changes did the crisis bring about?," Small Business Economics, Springer, vol. 48(4), pages 913-930, April.
    16. repec:ces:ifodic:v:14:y:2016:i:3:p:19255694 is not listed on IDEAS
    17. Andersson, Martin & Baltzopoulos, Apostolos & Lööf, Hans, 2012. "R&D strategies and entrepreneurial spawning," Research Policy, Elsevier, vol. 41(1), pages 54-68.

    More about this item

    Keywords

    Entrepreneurship; new business formation; regional development; entrepreneurship policy;
    All these keywords.

    JEL classification:

    • L26 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Entrepreneurship
    • M13 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - New Firms; Startups
    • O1 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development
    • O18 - Economic Development, Innovation, 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

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