IDEAS home Printed from https://ideas.repec.org/p/cen/wpaper/23-34.html

The Local Origins of Business Formation: Entry as a Two-Stage Process

Author

Listed:
  • Emin Dinlersoz
  • Timothy Dunne
  • John Haltiwanger
  • Veronika Penciakova

Abstract

The business entry literature typically observes firms only at the first hire. We provide a new perspective using linked administrative microdata tracking the universe of U.S. business applications and their transition into employer firms. We model entry as a two-stage process: pursuit of a business idea (proxied by a business application) and implementation (transition). Results show these margins are distinct and associate differently with local conditions. While both margins matter, high-startup locations are characterized by high application intensity, whereas low-startup locations exhibit low transition rates, suggesting geographic disparities in entry arise from different dynamics at each stage of the entrepreneurial process.

Suggested Citation

  • Emin Dinlersoz & Timothy Dunne & John Haltiwanger & Veronika Penciakova, 2023. "The Local Origins of Business Formation: Entry as a Two-Stage Process," Working Papers 23-34, Center for Economic Studies, U.S. Census Bureau.
    • Handle: RePEc:cen:wpaper:23-34
    as

    Download full text from publisher

    File URL: https://www2.census.gov/library/working-papers/2023/adrm/ces/CES-WP-23-34R.pdf
    File Function: Revised version, 2025
    Download Restriction: no
    File URL: https://www2.census.gov/library/working-papers/2023/adrm/ces/CES-WP-23-34.pdf
    File Function: First version, 2023
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Richard Ericson & Ariel Pakes, 1995. "Markov-Perfect Industry Dynamics: A Framework for Empirical Work," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 62(1), pages 53-82.
    2. Marcus Asplund & Volker Nocke, 2006. "Firm Turnover in Imperfectly Competitive Markets -super-1," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 73(2), pages 295-327.
    3. Valery Polkovnichenko, 2003. "Human Capital and the Private Equity Premium," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 6(4), pages 831-845, October.
    4. Davis, Steven J & Haltiwanger, John & Schuh, Scott, 1996. "Small Business and Job Creation: Dissecting the Myth and Reassessing the Facts," Small Business Economics, Springer, vol. 8(4), pages 297-315, August.
    5. Ia Vardishvili, 2026. "Entry Decision, the Option to Delay Entry, and Business Cycles," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 59, January.
    6. Volker Nocke, 2006. "A Gap for Me: Entrepreneurs and Entry," Journal of the European Economic Association, MIT Press, vol. 4(5), pages 929-956, September.
    7. Eleanor W. Dillon & Christopher T. Stanton, 2017. "Self-Employment Dynamics and the Returns to Entrepreneurship," NBER Working Papers 23168, National Bureau of Economic Research, Inc.
    8. Matteo Bobba, 2013. "Liquidity, Risk, and Occupational Choices," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 80(2), pages 491-511.
    9. Catherine E. Fazio & Jorge Guzman & Yupeng Liu & Scott Stern, 2021. "How is COVID Changing the Geography of Entrepreneurship? Evidence from the Startup Cartography Project," NBER Working Papers 28787, National Bureau of Economic Research, Inc.
    10. Robert W. Fairlie & Javier Miranda, 2017. "Taking the Leap: The Determinants of Entrepreneurs Hiring Their First Employee," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 26(1), pages 3-34, February.
    11. Jovanovic, Boyan, 1982. "Selection and the Evolution of Industry," Econometrica, Econometric Society, vol. 50(3), pages 649-670, May.
    12. Gustavo Manso, 2016. "Experimentation and the Returns to Entrepreneurship," The Review of Financial Studies, Society for Financial Studies, vol. 29(9), pages 2319-2340.
    13. Evans, David S & Jovanovic, Boyan, 1989. "An Estimated Model of Entrepreneurial Choice under Liquidity Constraints," Journal of Political Economy, University of Chicago Press, vol. 97(4), pages 808-827, August.
    14. Raj Chetty & Nathaniel Hendren & Patrick Kline & Emmanuel Saez, 2014. "Where is the land of Opportunity? The Geography of Intergenerational Mobility in the United States," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 129(4), pages 1553-1623.
    15. Jorge Guzman & Scott Stern, 2020. "The State of American Entrepreneurship: New Estimates of the Quantity and Quality of Entrepreneurship for 32 US States, 1988–2014," American Economic Journal: Economic Policy, American Economic Association, vol. 12(4), pages 212-243, November.
    16. Hopenhayn, Hugo A, 1992. "Entry, Exit, and Firm Dynamics in Long Run Equilibrium," Econometrica, Econometric Society, vol. 60(5), pages 1127-1150, September.
    17. Poschke, Markus, 2013. "Who becomes an entrepreneur? Labor market prospects and occupational choice," Journal of Economic Dynamics and Control, Elsevier, vol. 37(3), pages 693-710.
    18. Stuart S. Rosenthal & William C. Strange, 2003. "Geography, Industrial Organization, and Agglomeration," The Review of Economics and Statistics, MIT Press, vol. 85(2), pages 377-393, May.
    19. Paul Davidson Reynolds, 2017. "When is a Firm Born? Alternative Criteria and Consequences," Business Economics, Palgrave Macmillan;National Association for Business Economics, vol. 52(1), pages 41-56, January.
    20. Joshua D Gottlieb & Richard R Townsend & Ting Xu, 2022. "Does Career Risk Deter Potential Entrepreneurs?," The Review of Financial Studies, Society for Financial Studies, vol. 35(9), pages 3973-4015.
    21. John Haltiwanger & Erik Hurst & Javier Miranda & Antoinette Schoar, 2017. "Measuring Entrepreneurial Businesses: Current Knowledge and Challenges," NBER Books, National Bureau of Economic Research, Inc, number halt14-1, January.
    22. Paul D. Reynolds & Nancy M. Carter & William B. Gartner & Patricia G. Greene, 2004. "The Prevalence of Nascent Entrepreneurs in the United States: Evidence from the Panel Study of Entrepreneurial Dynamics," Small Business Economics, Springer, vol. 23(4), pages 263-284, November.
    23. Ryan Decker & John Haltiwanger & Ron Jarmin & Javier Miranda, 2014. "The Role of Entrepreneurship in US Job Creation and Economic Dynamism," Journal of Economic Perspectives, American Economic Association, vol. 28(3), pages 3-24, Summer.
    24. Mark Doms & Ethan Lewis & Alicia Robb, 2010. "Local Labor Force Education, New Business Characteristics, and Firm Performance," NBER Chapters, in: Cities and Entrepreneurship, National Bureau of Economic Research, Inc.
    25. Michael S. Dahl & Steven Klepper, 2015. "Whom do new firms hire?," Industrial and Corporate Change, Oxford University Press and the Associazione ICC, vol. 24(4), pages 819-836.
    26. Pierre Azoulay & Benjamin F. Jones & J. Daniel Kim & Javier Miranda, 2020. "Age and High-Growth Entrepreneurship," American Economic Review: Insights, American Economic Association, vol. 2(1), pages 65-82, March.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Lucas, David S., 2024. "The effect of regime change on entrepreneurship: A real options approach with evidence from US gubernatorial elections," Journal of Business Venturing, Elsevier, vol. 39(4).
    2. Emin Dinlersoz & Yueyuan Ma, 2026. "Expectations versus Reality in Business Formation," Working Papers 26-11, Center for Economic Studies, U.S. Census Bureau.
    3. Emin Dinlersoz & Can Dogan & Nikolas Zolas, 2024. "Starting Up AI," Working Papers 24-09, Center for Economic Studies, U.S. Census Bureau.
    4. repec:ags:aaea22:343903 is not listed on IDEAS

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Emin M. Dinlersoz & Timothy Dunne & John Haltiwanger & Veronika Penciakova, 2023. "Local Origins of Business Formation," Policy Hub, Federal Reserve Bank of Atlanta, vol. 2023(7), pages 1-12, November.
    2. Lindquist, Matthew J. & Vladasel, Theodor, 2025. "Are entrepreneurs more upwardly mobile?," Journal of Business Venturing, Elsevier, vol. 40(4).
    3. repec:osf:socarx:qhs6j_v1 is not listed on IDEAS
    4. Sabrina T. Howell, 2017. "Reducing Information Frictions in Venture Capital: The Role of New Venture Competitions," NBER Working Papers 23874, National Bureau of Economic Research, Inc.
    5. Geurts, Karen & Van Biesebroeck, Johannes, 2016. "Firm creation and post-entry dynamics of de novo entrants," International Journal of Industrial Organization, Elsevier, vol. 49(C), pages 59-104.
    6. Denes, Matthew & Lagaras, Spyridon & Tsoutsoura, Margarita, 2025. "Entrepreneurship and the gig economy: Evidence from U.S. tax returns," Journal of Financial Economics, Elsevier, vol. 173(C).
    7. Jaan Masso & Amaresh K Tiwari, 2021. "Productivity Implications Of R&D, Innovation And Capital Accumulation For Incumbents And Entrants: The Case Of Estonia," University of Tartu - Faculty of Economics and Business Administration Working Paper Series 130, Faculty of Economics and Business Administration, University of Tartu (Estonia).
    8. Vladimir Smirnyagin, 2020. "Compositional nature of firm growth and aggregate fluctuations," Bank of England working papers 846, Bank of England.
    9. Joonkyu Choi & Nathan Goldschlag & John Haltiwanger & J. Daniel Kim, 2019. "Founding Teams and Startup Performance," Working Papers 19-32, Center for Economic Studies, U.S. Census Bureau.
    10. Tania Babina & Wenting Ma & Christian Moser & Paige Ouimet & Rebecca Zarutskie, 2019. "Pay, Employment, and Dynamics of Young Firms," Working Papers 19-23, Center for Economic Studies, U.S. Census Bureau.
    11. Victor M. Bennett & Aaron K. Chatterji, 2023. "The entrepreneurial process: Evidence from a nationally representative survey," Strategic Management Journal, Wiley Blackwell, vol. 44(1), pages 86-116, January.
    12. J David Brown & John S Earle & Mee Jung Kim & Kyung Min Lee, 2019. "Start-ups, job creation, and founder characteristics," Industrial and Corporate Change, Oxford University Press and the Associazione ICC, vol. 28(6), pages 1637-1672.
    13. Emin Dinlersoz & Yueyuan Ma, 2026. "Expectations versus Reality in Business Formation," Working Papers 26-11, Center for Economic Studies, U.S. Census Bureau.
    14. Sari Pekkala Kerr & William R. Kerr & Tina Xu, 2017. "Personality Traits of Entrepreneurs: A Review of Recent Literature," NBER Working Papers 24097, National Bureau of Economic Research, Inc.
    15. Gendron-Carrier, Nicolas, 2023. "Prior Work Experience and Entrepreneurship: The Careers of Young Entrepreneurs," IZA Discussion Papers 16145, IZA Network @ LISER.
    16. J. David Brown & John S. Earle & Mee Jung Kim & Kyung Min Lee, 2017. "High-Growth Entrepreneurship," Working Papers 17-53, Center for Economic Studies, U.S. Census Bureau.
    17. Aymeric Bellon & J. Anthony Cookson & Erik P. Gilje & Rawley Z. Heimer, 2020. "Personal Wealth and Self-Employment," NBER Working Papers 27452, National Bureau of Economic Research, Inc.
    18. Marco Vivarelli, 2013. "Is entrepreneurship necessarily good? Microeconomic evidence from developed and developing countries," Industrial and Corporate Change, Oxford University Press and the Associazione ICC, vol. 22(6), pages 1453-1495, December.
    19. Galina Vereshchagina & Hugo A. Hopenhayn, 2009. "Risk Taking by Entrepreneurs," American Economic Review, American Economic Association, vol. 99(5), pages 1808-1830, December.
    20. Florin Maican & Matilda Orth, 2017. "Productivity Dynamics and the Role of ‘Big-Box’ Entrants in Retailing," Journal of Industrial Economics, Wiley Blackwell, vol. 65(2), pages 397-438, June.
    21. Cristina Fernández & Roberta García & Paloma Lopez-Garcia & Benedicta Marzinotto & Roberta Serafini & Juuso Vanhala & Ladislav Wintr, 2017. "Firm growth in Europe: An overview based on the COMPNET labour module," BCL working papers 107, Central Bank of Luxembourg.

    More about this item

    JEL classification:

    • L26 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Entrepreneurship
    • M13 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - New Firms; Startups
    • R12 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Size and Spatial Distributions of Regional Economic Activity; Interregional Trade (economic geography)

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    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:cen:wpaper:23-34. See general information about how to correct material in RePEc.

    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.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with 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.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Dawn Anderson (email available below). General contact details of provider: https://edirc.repec.org/data/cesgvus.html .

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

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.