Industry Choices and Social Interactions of Entrepreneurs: Identification by Residential Addresses
This paper shows that industry choices of entrepreneurs are determined by their social networks. The separation of residential and business addresses helps us establish the causality, because we can safely argue that residential addresses determine social networks but do not directly affect industry choices. In a large cross-section of London neighborhoods (average area: one squared-mile), we show that new generation of entrepreneurs are more likely to enter industries overrepresented by their residential neighbors. We further show that industry composition of a neighborhood is more persistent when social interactions are more intensive and of higher quality, as proxied by higher ethnic homogeneity, more sociable housing structures, or higher entrepreneurial population density. The effect is also stronger in industries that require more informational interactions, as proxied by greater geographic agglomeration of entrepreneurs. The median home- business distances in our sample is nearly six kilometers, thus the persistence of a neighborhood’s industry specialization is unlikely to be driven by unobservable common product market conditions. We also control for industry specialization at borough level (each borough contains around 20 neighborhoods), to further remove the effects of unobservable factors. Finally, we also use various sub-groups of entrepreneurs to test for a series of alternative hypotheses, and we do not find support for them. We do not find failure rates to be significantly different for entrepreneurs who follow their neighbors’ popular choices. Overall, the results suggest that entry of new entrepreneurs tend to reinforce agglomeration, while exits do not reverse it. These evidences (weakly) lend support to the existence of agglomeration economies.
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Cole, Harold L & Mailath, George J & Postlewaite, Andrew, 1992. "Social Norms, Savings Behavior, and Growth," Journal of Political Economy, University of Chicago Press, vol. 100(6), pages 1092-1125, December.
- Lei Feng & Mark S. Seasholes, 2004. "Correlated Trading and Location," Journal of Finance, American Finance Association, vol. 59(5), pages 2117-2144, October.
- Glenn Ellison & Edward L. Glaeser, 1994.
"Geographic Concentration in U.S. Manufacturing Industries: A Dartboard Approach,"
NBER Working Papers
4840, National Bureau of Economic Research, Inc.
- Ellison, Glenn & Glaeser, Edward L, 1997. "Geographic Concentration in U.S. Manufacturing Industries: A Dartboard Approach," Journal of Political Economy, University of Chicago Press, vol. 105(5), pages 889-927, October.
- Ellison, G. & Glaeser, E.L., 1994. "Geographic Concentration in U.S. Manufacturing Industries: A Dartboard Approach," Working papers 94-27, Massachusetts Institute of Technology (MIT), Department of Economics.
- Brock, William A. & Durlauf, Steven N., 2001.
Handbook of Econometrics,
in: J.J. Heckman & E.E. Leamer (ed.), Handbook of Econometrics, edition 1, volume 5, chapter 54, pages 3297-3380
When requesting a correction, please mention this item's handle: RePEc:wpa:wuwpla:0507010. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (EconWPA)
If references are entirely missing, you can add them using this form.