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The geography of new firm formation: Evidence from independent start-ups and new subsidiaries in the Netherlands

Abstract

This paper investigates to what extent determinants of the rate of independent start-ups and the rate of new subsidiaries are different. Using a regional database for the Netherlands over the period 1988–2002, we investigate the impact of two types of agglomeration effects, localization and urbanization, while controlling for a range of economic variables. We find urbanization economies to be particularly important for the creation of new subsidiaries while localization economies are more important for the creation of independent new ventures. Finally, the effect of agglomeration variables is found to be stronger for manufacturing industries compared to services industries.

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Fig. 1

Notes

  1. 1.

    These studies find a positive net effect of the number of start-ups on regional employment growth. In contrary to most studies that use gross entry, Bosma et al. (2006) investigate the impact of turbulence (sum of entries and exits) on growth of total factor productivity for the Netherlands. They find a positive effect for services and no effect for manufacturing.

  2. 2.

    However, the relevance of some demographic determinants heavily depends on the regional scale of analysis. For example there is often very limited regional variation in age distributions and practically none in gender distributions within countries at the NUTS1 or NUTS2 level.

  3. 3.

    In our data base registrations of new independent startups are separated from registrations of new subsidiaries and new branch plants.

  4. 4.

    Note that these correlations refer to the absolute numbers of the two modes of entry, whereas the correlations presented earlier referred to entry rates.

  5. 5.

    These are based on item 1 of a five-item Corop-measure on the degree of urbanization that is formed by information at the zip-code level and provided by Statistics Netherlands. In this measure item 1 represents the percentage of people in the Corop region who live in a highly urbanized area and item 5 represents the percentage in a highly rural area.

  6. 6.

    If we use workforce as scaling variable in both equations, the SUR estimates of the unemployment rates are non-significant for both modes of entry. The non-robustness of the effect of this variable is in line with the mixed results found in the literature, see Table 1.

  7. 7.

    Also, many low-tech services (new) firms in rural areas sustain the viability of small village communities.

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Acknowledgement

The paper has been written in the framework of the research program SCALES, which is carried out by EIM and is financed by the Dutch Ministry of Economic Affairs. The authors gratefully acknowledge the comments from Erik Stam and Veronique Schutjens on an earlier draft. The usual disclaimer applies.

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Correspondence to Niels Bosma.

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Bosma, N., van Stel, A. & Suddle, K. The geography of new firm formation: Evidence from independent start-ups and new subsidiaries in the Netherlands. Int Entrep Manag J 4, 129–146 (2008). https://doi.org/10.1007/s11365-007-0058-8

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Keywords

  • Agglomeration economies
  • Subsidiaries
  • Independent start-ups
  • Regions
  • The Netherlands