IDEAS home Printed from
   My bibliography  Save this article

New firm formation: Dynamics and determinants


  • Vinod Sutaria


  • Donald A. Hicks



Empirical studies of determinants of new firm formation to date have tended to yield diverse and even contradictory results. Three primary reasons for this have been advanced: (1) the paucity of suitable micro-level data (2) the failure to control for amorphous time- and place-specific influences that defy specification, and (3) the use of estimation techniques that do not handle adequately the effects of heteroscedasticity. This paper addresses all of these shortcomings by employing a unique data set composed of annual data on localized firm entry, exit and a variety of predictor variables that has been analyzed to yield heteroscedasticity-corrected estimates while controlling for unspecified place- and period-specific influences. We test a variety of models seeking to explain patterns of new firm formation in terms of macroeconomic, demographic, and labor market processes, patterns of industrial restructuring, availability of local financial capital, and local public sector spending. Our results suggest that regional patterns of new firm formation can be explained by variation in unemployment change rates, mean establishment size, prior firm entry and exit dynamics, and the availability of local financial capital. We find no evidence of influence attributable to population or income dynamics, unemployment level, or local government spending. Copyright Springer-Verlag 2004

Suggested Citation

  • Vinod Sutaria & Donald A. Hicks, 2004. "New firm formation: Dynamics and determinants," The Annals of Regional Science, Springer;Western Regional Science Association, vol. 38(2), pages 241-262, June.
  • Handle: RePEc:spr:anresc:v:38:y:2004:i:2:p:241-262
    DOI: 10.1007/s00168-004-0194-9

    Download full text from publisher

    File URL:
    Download Restriction: Access to full text is restricted to subscribers.

    As the access to this document is restricted, you may want to search for a different version of it.

    More about this item


    Access and download statistics


    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:spr:anresc:v:38:y:2004:i:2:p:241-262. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Sonal Shukla) or (Springer Nature Abstracting and Indexing). General contact details of provider: .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.