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Market Potential and New Firm Formation

Author

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  • Grek, Jenny

    () (CESIS - Centre of Excellence for Science and Innovation Studies, Royal Institute of Technology)

  • Karlsson, Charlie

    () (CESIS - Centre of Excellence for Science and Innovation Studies, Royal Institute of Technology)

  • Klaesson, Johan

    () (CESIS - Centre of Excellence for Science and Innovation Studies, Royal Institute of Technology)

Abstract

The purpose of the paper is to show how entrepreneurship conditions vary between regions of various sizes, and test the theoretical arguments on why large regions generally should generate more entrepreneurship. The paper empirically ana¬lyzes the role of regional size in explaining varia¬tions in total entrepreneurship. It also examines en¬trepreneurship in different sectors across functional regions, using data from Sweden for the period 1993 to 2004. Employing fixed effects vector decomposition (FEVD) regressions, we estimate how the conditions for entrepreneurship vary between re¬gions. The results show that the market potential as measured by local and external accessibility to gross regional product (GRP) has a strong significant impact on both entry of new firms and on firm exit. For the primary sector and the manufacturing sector this impact is negative and for the ordinary service sector and the advanced service sector its positive. A high employment rate implies that there is a strong negative impact on firm entry in all sectors. This is in line with what one could expect as there are weaker incentives for individuals starting own businesses in periods of low employment rate. Further, the presence of many small firms in different sectors has a strong positive significant impact on new firm formation.

Suggested Citation

  • Grek, Jenny & Karlsson, Charlie & Klaesson, Johan, 2009. "Market Potential and New Firm Formation," Working Paper Series in Economics and Institutions of Innovation 202, Royal Institute of Technology, CESIS - Centre of Excellence for Science and Innovation Studies.
  • Handle: RePEc:hhs:cesisp:0202
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    Cited by:

    1. Hans Lööf & Pardis Nabavi, 2014. "Survival, productivity and growth of new ventures across locations," Small Business Economics, Springer, vol. 43(2), pages 477-491, August.
    2. 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.
    3. Martin G.A. Svensson, 2015. "When being wrong might be right: on overconfidence as an evolutionary mechanism of nascent entrepreneurs," Chapters,in: Innovation and Entrepreneurship in the Global Economy, chapter 10, pages 237-258 Edward Elgar Publishing.

    More about this item

    Keywords

    Entrepreneurship; Entry; Exit; Net entry; Regions; Sweden;

    JEL classification:

    • L10 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - General
    • R11 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Regional Economic Activity: Growth, Development, Environmental Issues, and Changes
    • R12 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Size and Spatial Distributions of Regional Economic Activity; Interregional Trade (economic geography)

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