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Regional determinants of entrepreneurial start-ups in a developing country

  • Wim Naudé
  • Thomas Gries
  • Eric Wood
  • Aloe Meintjies

In this paper we use data from a developing country, South Africa, to empirically identify the determinants of start-up rates across different sub-national regions and in particular to investigate the role of access to finance on a regional (sub-national) level on start-ups. We find that the most important determinants of start-up rates across South Africa's magisterial districts are profit rates, educational levels, agglomeration as measured by the economic size of a district, and access to formal bank finance. Profits have by far the strongest effect on start-up rates. This, together with the insignificance of unemployment for start-ups, may imply that start-ups in South Africa are mainly opportunity-driven, as opposed to being necessity driven. It is also found that access to formal bank finance matter for regional start-up rates, which is not typical for a developing country and that market-size (agglomerations) is negatively associated with start-up rates in South Africa--an unexpected finding which may imply the existence of ‘congesting' factors such as increased competition, tougher barriers to entry, monopolistic behaviour, and a greater difficulty to be innovative and novel.

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File URL: http://hdl.handle.net/10.1080/08985620701631498
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Article provided by Taylor & Francis Journals in its journal Entrepreneurship & Regional Development.

Volume (Year): 20 (2008)
Issue (Month): 2 (March)
Pages: 111-124

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