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What determines entrepreneurial clusters?

  • L. Guiso
  • F. Schivardi

    ()

We contrast two potential explanations of the substantial differences in entrepreneurial activity observed across geographical areas - entry costs and external effects. We extend the Lucas model of entrepreneurship to allow for heterogeneous entry costs and for externalities that shift the distribution of entrepreneurial talents. We show that these assumptions have opposite predictions on the relation between entrepreneurial activity and firm level TFP - with different entry costs, in areas with more entrepreneurs firms’ average productivity should be lower and vice versa. We test these implications on a sample of Italian firms and unambiguously reject the entry costs explanation in favor of the externalities one. We also investigate the sources of external effects, finding robust evidence that learning externalities are an important determinant of cross-sectional differences in entrepreneurial activity

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Paper provided by Centre for North South Economic Research, University of Cagliari and Sassari, Sardinia in its series Working Paper CRENoS with number 200616.

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Date of creation: 2006
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Handle: RePEc:cns:cnscwp:200616
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  26. Fonseca, Raquel & Lopez-Garcia, Paloma & Pissarides, Christopher A., 2001. "Entrepreneurship, start-up costs and employment," European Economic Review, Elsevier, vol. 45(4-6), pages 692-705, May.
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