Local entrepreneurship clusters in cities

We show that entrepreneurs are co-located within cities. One plausible source of such spatial clustering is local social interactions, where individuals’ decisions to become entrepreneurs are influenced by entrepreneurial neighbors. Using geo-coded matched employer–employee data for Sweden, we find that sharing residential neighborhood with established entrepreneurs has a statistically significant and robust influence on the probability that an individual leaves employment for entrepreneurship. An otherwise average neighborhood with a 5% point higher entrepreneurial intensity, all else equal, produces between six and seven additional entrepreneurs per square kilometer, each year. Our estimates suggest a local feedback-effect in which the presence of established entrepreneurs in a neighborhood influences the emergence of new local entrepreneurs. Our analysis supports the conjecture that social interaction effects constitute a mechanism by which local entrepreneurship clusters in cities develop and persist over time.