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Why Does the Effect of New Business Formation Differ Across Regions?

  • Michael Fritsch

    ()

    (Friedrich Schiller University Jena, Faculty of Economics and Business Administration)

  • Alexandra Schroeter

    ()

    (Friedrich Schiller University Jena, Faculty of Economics and Business Administration)

We investigate regional differences of the effect of new business formation on employment growth in West Germany. We find an inverse ‘u’-shaped relationship between the level of start-up activity and employment change. The main variables that shape the employment effects of new businesses in a region are population density, the share of medium level skilled workers, the proportion of Research and Development conducted in small businesses (entrepreneurial technological regime), the unemployment rate as well as the degree of specialization of the regional economy. However, indicators for education and innovation activity in the region proved not to be statistically significant. Conducting our analysis for manufacturing and services separately confirmed the pattern of our previous results only for manufacturing but not for services.

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Paper provided by Friedrich-Schiller-University Jena, Max-Planck-Institute of Economics in its series Jena Economic Research Papers with number 2007-077.

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Date of creation: 30 Oct 2007
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Handle: RePEc:jrp:jrpwrp:2007-077
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