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Entrepreneurship and Regional Economic Growth: Towards A General Theory of Start-Ups

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Author Info
Gries, Thomas
Naude, Wim

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Abstract

Start-ups of new firms are important for economic growth. However, start-up rates differ significantly between countries and within regions of the same country. A large empirical literature studies the reasons for this and attempts to identify the regional determinants of start-ups. In contrast, there is a much smaller theoretical literature that attempts the formal modelling of the start-up process within a region. In this paper, we attempt to contribute to this small literature by introducing a general theoretical model of the entrepreneurial start-up process. The model links start-ups to economic growth and can be applied to understand growth in a regional context. We derive five propositions that fit the stylized facts from the empirical literature: (i) growth in the regional economy is driven by an expansion in the number of start-up firms that supply intermediate goods and services; (ii) improvements in human capital will enhance the rate of start-ups; (iii) improvements in the relative rates of return to entrepreneurs and business conditions will raise start-up rates; (iv) an increase in regional financial concentration will reduce the start-up rate in a region and; (v) increased agglomeration/urbanization in a region has an a priori ambiguous effect on start-up rates.

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Paper provided by World Institute for Development Economic Research (UNU-WIDER) in its series Working Papers with number RP2008/70.

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Length: 26 pages
Date of creation: 2008
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Handle: RePEc:unu:wpaper:rp2008-70

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Keywords: start-ups; entrepreneurship; frictions; economic growth;

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(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Tobias Stucki, 2009. "How Long Do External Capital Constraints Matter?," KOF Working papers 09-241, KOF Swiss Economic Institute, ETH Zurich. [Downloadable!]
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