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

Author

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  • Michael Fritsch

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

  • Alexandra Schroeter

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

Abstract

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.

Suggested Citation

  • Michael Fritsch & Alexandra Schroeter, 2007. "Why Does the Effect of New Business Formation Differ Across Regions?," Jena Economics Research Papers 2007-077, Friedrich-Schiller-University Jena.
    • Handle: RePEc:jrp:jrpwrp:2007-077
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    JEL classification:

    • M13 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - New Firms; Startups
    • O1 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development
    • O18 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Urban, Rural, Regional, and Transportation Analysis; Housing; Infrastructure
    • R11 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Regional Economic Activity: Growth, Development, Environmental Issues, and Changes

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