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The effect of local business climate on employment


  • Stefan Fölster
  • Li Jansson
  • Anton Nyrenström Gidehag


Purpose - – The purpose of this paper is to analyse empirically whether policies to improve the local business climate affect employment in general, and among groups of immigrants that suffer from structural unemployment. Design/methodology/approach - – The paper analyses the relation between Swedish entrepreneurs’ perception of the local business climate and total employment as well as employment among immigrants born outside of Europe, a group that tends to be particularly affected by structural unemployment. Instrumental variable and Arellano-Bond GMM estimation indicate that a better local business climate improves immigrants employment considerably more than total employment. Findings - – The results suggest that improvements in institutions and policies that entrepreneurs perceive as shaping the business climate may have an important effect on employment, in particular employment of groups that tend to have high rates of structural unemployment. Given the limitations, the estimates appear robust over a variety of specifications. Research limitations/implications - – The authors use a subjective measure of local business climate policies, but instrument this with an exogenous variable and lagged variables. The unit of observation are Swedish municipalities, which in contrast to other countries control many factors important for business. Practical implications - – Employment policies often focus on labour market institutions. The results suggest that other policies and their local implementation may be equally important for employment. Unfortunately the study does not reveal much detail of which specific measures give the greatest effects. That remains to be done in future research. Social implications - – The positive employment effects the authors find are particularly large for immigrants born outside of Europe. If the results are correct, then better local business climate could make an important contribution to social cohesion. Originality/value - – While there are more studies that analyse the relation between entrepreneurship and employment, much fewer previous studies have tried to establish a link between business climate policies and employment. The authors do this with a novel approach.

Suggested Citation

  • Stefan Fölster & Li Jansson & Anton Nyrenström Gidehag, 2016. "The effect of local business climate on employment," Journal of Entrepreneurship and Public Policy, Emerald Group Publishing, vol. 5(1), pages 2-24, April.
  • Handle: RePEc:eme:jepppp:v:5:y:2016:i:1:p:2-24

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    References listed on IDEAS

    1. Stefan Fölster & Sam Peltzman, 2010. "Competition, Regulation and the Role of Local Government Policies in Swedish Markets," NBER Chapters, in: Reforming the Welfare State: Recovery and Beyond in Sweden, pages 253-284, National Bureau of Economic Research, Inc.
    2. Benny Borgman & Pontus Braunerhjelm, 2010. "Entrepreneurship and Local Growth: A Comparison of the US and Sweden," Chapters, in: Charlie Karlsson & Börje Johansson & Roger R. Stough (ed.), Entrepreneurship and Regional Development, chapter 4, Edward Elgar Publishing.
    3. Magnus Henrekson & Dan Johansson, 2010. "Gazelles as job creators: a survey and interpretation of the evidence," Small Business Economics, Springer, vol. 35(2), pages 227-244, September.
    4. Thurik, A. Roy & Carree, Martin A. & van Stel, André & Audretsch, David B., 2008. "Does self-employment reduce unemployment?," Journal of Business Venturing, Elsevier, vol. 23(6), pages 673-686, November.
    5. Noel Campbell & David T. Mitchell & Tammy M. Rogers, 2013. "Multiple measures of US entrepreneurial activity and classical liberal institutions," Journal of Entrepreneurship and Public Policy, Emerald Group Publishing, vol. 2(1), pages 4-20, April.
    6. World Bank, 2006. "The World Bank Annual Report 2006," World Bank Publications, The World Bank, number 7526.
    7. Magnus Henrekson & Dan Johansson & Mikael Stenkula, 2010. "Taxation, Labor Market Policy and High-Impact Entrepreneurship," Journal of Industry, Competition and Trade, Springer, vol. 10(3), pages 275-296, September.
    8. World Bank, 2006. "World Bank Research Digest, Vol. 1(2)," World Bank Other Operational Studies 20982, The World Bank.
    9. Michael Fritsch & Florian Noseleit, 2013. "Investigating the anatomy of the employment effect of new business formation," Cambridge Journal of Economics, Oxford University Press, vol. 37(2), pages 349-377.
    10. Deschryvere, Matthias, 2008. "High Growth Firms and Job Creation in Finland," Discussion Papers 1144, The Research Institute of the Finnish Economy.
    11. Jed Kolko & David Neumark & Marisol Cuellar Mejia, 2013. "What Do Business Climate Indexes Teach Us About State Policy And Economic Growth?," Journal of Regional Science, Wiley Blackwell, vol. 53(2), pages 220-255, May.
    12. Nyström, Kristina, 2008. "Is Entrepreneurship the Salvation for Enhanced Economic Growth?," Working Paper Series in Economics and Institutions of Innovation 143, Royal Institute of Technology, CESIS - Centre of Excellence for Science and Innovation Studies.
    13. Helge Berger & Stephan Danninger, 2005. "Labor and Product Market Deregulation; Partial, Sequential, or Simultaneous Reform?," IMF Working Papers 05/227, International Monetary Fund.
    14. World Bank, 2006. "World Bank Research Digest, Vol. 1(1)," World Bank Other Operational Studies 20981, The World Bank.
    15. Teresa Abada & Feng Hou & Yuqian Lu, 2014. "Choice or necessity: do immigrants and their children choose self-employment for the same reasons?," Work, Employment & Society, British Sociological Association, vol. 28(1), pages 78-94, February.
    16. Monia Lougui & Kristina Nyström, 2014. "What obstacles do entrepreneurs encounter?," Journal of Entrepreneurship and Public Policy, Emerald Group Publishing, vol. 3(2), pages 275-291, October.
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