This paper shows that industry choices of entrepreneurs are determined by their social networks. The separation of residential and business addresses helps us establish the causality, because we can safely argue that residential addresses determine social networks but do not directly affect industry choices. In a large cross-section of London neighborhoods (average area: one squared-mile), we show that new generation of entrepreneurs are more likely to enter industries overrepresented by their residential neighbors. We further show that industry composition of a neighborhood is more persistent when social interactions are more intensive and of higher quality, as proxied by higher ethnic homogeneity, more sociable housing structures, or higher entrepreneurial population density. The effect is also stronger in industries that require more informational interactions, as proxied by greater geographic agglomeration of entrepreneurs. The median home- business distances in our sample is nearly six kilometers, thus the persistence of a neighborhood’s industry specialization is unlikely to be driven by unobservable common product market conditions. We also control for industry specialization at borough level (each borough contains around 20 neighborhoods), to further remove the effects of unobservable factors. Finally, we also use various sub-groups of entrepreneurs to test for a series of alternative hypotheses, and we do not find support for them. We do not find failure rates to be significantly different for entrepreneurs who follow their neighbors’ popular choices. Overall, the results suggest that entry of new entrepreneurs tend to reinforce agglomeration, while exits do not reverse it. These evidences (weakly) lend support to the existence of agglomeration economies.
Download Info
To download:
If you experience problems downloading a file, check if you have the
proper application to
view it first. Information about this may be contained
in the File-Format links below. In case of further problems read
the IDEAS help
page. Note that these files are not on the IDEAS
site. Please be patient as the files may be large.
Publisher Info
Paper provided by EconWPA in its series Labor and Demography with number
0507010.
Length: 48 pages Date of creation: 26 Jul 2005 Date of revision:
07 Aug 2005 Handle: RePEc:wpa:wuwpla:0507010
Note: Type of Document - pdf; pages: 48 Contact details of provider: Web page: http://129.3.20.41
For technical questions regarding this item, or to correct its listing, contact: (EconWPA).
Related research
Keywords:
Other versions of this item:
Find related papers by JEL classification: M13 - Business Administration and Business Economics; Marketing; Accounting - - Business Administration - - - New Firms; Startups J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity R12 - Urban, Rural, and Regional Economics - - General Regional Economics - - - Size and Spatial Distributions of Regional Economic Activity; Interregional Trade (economic geography)
This paper has been announced in the following NEP Reports:
References listed on IDEAS 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.: