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Why Butterflies Don’t Leave. Locational behaviour of entrepreneurial firms

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  • Erik Stam

Abstract

Entrepreneurship is an important process in regional economic development. Especially the continued growth of a minority of new firms is of major significance to the commercialization of new ideas and employment growth. These growing new firms are transforming on a structural basis, like caterpillars turning into butterflies. However, like butterflies they are at risk to leave their region of origin for better places. This paper analyses how and why the spatial organization of firms develops subsequent to their start-up. A new conceptual framework and an empirical study of the life course of entrepreneurial firms are used to construct a theory on their locational behavior that explains that behavior as the outcome of a process of initiatives taken by entrepreneurs, enabled and constrained by resources, capabilities and relations with stakeholders within and outside of the firm. This study shows that entrepreneurs decide whether or not to move their firm outside of their region of origin for different reasons in distinct phases of the firm life course. Being embedded in social networks, for example, is an important constraint on locational behavior during the early life course of a firm, but over time this becomes less important and other mechanisms like sunk costs increasingly determine the locational behavior of fast-growing firms. The development of the spatial organization is also of major importance: when a multilocational spatial organization has been realized, it is much easier to move the headquarters to another region. The spatial organization of entrepreneurial firms co-evolves with the accumulation of their capabilities. A developmental approach incorporating evolutionary mechanisms and recognizing human agency provides new insights into the age-old study of firm location.

Suggested Citation

  • Erik Stam, 2006. "Why Butterflies Don’t Leave. Locational behaviour of entrepreneurial firms," Papers on Entrepreneurship, Growth and Public Policy 2006-20, Max Planck Institute of Economics, Entrepreneurship, Growth and Public Policy Group.
  • Handle: RePEc:esi:egpdis:2006-20
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    File URL: ftp://papers.econ.mpg.de/egp/discussionpapers/2006-20.pdf
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    References listed on IDEAS

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    1. Ron A. Boschma & Jan G. Lambooy, 1999. "Evolutionary economics and economic geography," Journal of Evolutionary Economics, Springer, vol. 9(4), pages 411-429.
    2. John H Dunning, 1998. "Location and the Multinational Enterprise: A Neglected Factor?," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 29(1), pages 45-66, March.
    3. Erkko Autio, 2005. "Creative tension: the significance of Ben Oviatt's and Patricia McDougall's article ‘toward a theory of international new ventures’," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 36(1), pages 9-19, January.
    4. William B. Beyers, 2002. "Services and the New Economy: elements of a research agenda," Journal of Economic Geography, Oxford University Press, vol. 2(1), pages 1-29, January.
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    Citations

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    Cited by:

    1. Darja Reuschke, 2011. "Self-Employment and Geographical Mobility in Germany," SOEPpapers on Multidisciplinary Panel Data Research 417, DIW Berlin, The German Socio-Economic Panel (SOEP).
    2. Oliver Falck & Michael Fritsch & Stephan Heblich, 2008. "The Apple doesn't Fall far from the Tree: Location of Start-Ups Relative to Incumbents," CESifo Working Paper Series 2486, CESifo Group Munich.
    3. David Audretsch & Oliver Falck & Stephan Heblich, 2011. "Who’s got the aces up his sleeve? Functional specialization of cities and entrepreneurship," The Annals of Regional Science, Springer;Western Regional Science Association, vol. 46(3), pages 621-636, June.
    4. Gries, Thomas & Naude, Wim, 2008. "Entrepreneurship and Regional Economic Growth: Towards A General Theory of Start-Ups," WIDER Working Paper Series 070, World Institute for Development Economic Research (UNU-WIDER).
    5. Martin Henning & Erik Stam & Rik Wenting, 2013. "Path Dependence Research in Regional Economic Development: Cacophony or Knowledge Accumulation?," Regional Studies, Taylor & Francis Journals, vol. 47(8), pages 1348-1362, September.
    6. Fritsch, Michael, 2013. "New Business Formation and Regional Development: A Survey and Assessment of the Evidence," Foundations and Trends(R) in Entrepreneurship, now publishers, vol. 9(3), pages 249-364, February.
    7. Martin Andersson & Pontus Braunerhjelm & Per Thulin, 2012. "Creative destruction and productivity: entrepreneurship by type, sector and sequence," Journal of Entrepreneurship and Public Policy, Emerald Group Publishing, vol. 1(2), pages 125-146, October.
    8. Alvarez-segura, Francisco, 2012. "El Tajin, an archeological World Heritage site and tourist sustainable development”," EBLA Working Papers 201201, University of Turin.
    9. Marco Vivarelli, 2012. "Entrepreneurship and Post-Entry Performance: the Microeconomic Evidence," DISCE - Quaderni del Dipartimento di Scienze Economiche e Sociali dises1286, Università Cattolica del Sacro Cuore, Dipartimenti e Istituti di Scienze Economiche (DISCE).
    10. Elisabeth Bublitz & Michael Fritsch & Michael Wyrwich, 2015. "Balanced Skills and the City: An Analysis of the Relationship between Entrepreneurial Skill Balance, Thickness, and Innovation," Economic Geography, Clark University, vol. 91(4), pages 475-508, October.
    11. Vivarelli, Marco, 2012. "Drivers of entrepreneurship and post-entry performance : microeconomic evidence from advanced and developing countries," Policy Research Working Paper Series 6245, The World Bank.
    12. Vivarelli, Marco, 2012. "Entrepreneurship in Advanced and Developing Countries: A Microeconomic Perspective," IZA Discussion Papers 6513, Institute for the Study of Labor (IZA).
    13. Michael Fritsch & Alexandra Schroeter, 2011. "Why does the effect of new business formation differ across regions?," Small Business Economics, Springer, vol. 36(4), pages 383-400, May.
    14. Michael Fritsch, 2011. "The effect of new business formation on regional development - Empirical evidence, interpretation, and avenues for further research," Jena Economic Research Papers 2011-006, Friedrich-Schiller-University Jena.
    15. Michael Fritsch, 2012. "Methods of analyzing the relationship between new business formation and regional development," Jena Economic Research Papers 2012-064, Friedrich-Schiller-University Jena.
    16. Robert & Claudia Klaerding, 2012. "Theoretical advancement in economic geography by engaged pluralism," Papers in Evolutionary Economic Geography (PEEG) 1202, Utrecht University, Department of Human Geography and Spatial Planning, Group Economic Geography, revised Jan 2012.
    17. Audretsch, David B & Falck, Oliver & Feldman, Maryann P & Heblich, Stephan, 2008. "The Lifecycle of Regions," CEPR Discussion Papers 6757, C.E.P.R. Discussion Papers.
    18. E. Stam & R. Martin, 2012. "When High Tech ceases to be High Growth: The Loss of Dynamism of the Cambridgeshire Regio," Working Papers 12-10, Utrecht School of Economics.

    More about this item

    Keywords

    location; location behavior; spatial organization; theory of the firm; entrepreneurial firms; entrepreneurship; firm growth; regional economic development;

    JEL classification:

    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation
    • L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure
    • M13 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - New Firms; Startups
    • R11 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Regional Economic Activity: Growth, Development, Environmental Issues, and Changes
    • R30 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - General

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