New Business Formation by Industry over Space and Time

Abstract

There is little doubt that new business formation plays an important role in the process of economic development (Fritsch and Mueller 2004; van Stel and Storey 2004; Carree and Thurik 2003).² Each new business or market entry represents a challenge to the incumbents and, consequently, may generate significant incentives for improvements. The determinants of new business formation have been investigated theoretically and empirically in a number of ways. Most empirical studies in this field are cross-sectional analyses of different industries or regions.³ Longitudinal analyses of new business formation processes are rather rare.⁴ A severe shortcoming of these analyses is that most of them are limited to only one category of influence — industry, space or time — and tend to neglect other factors. The types of influences that are accounted for is mainly due to the approach chosen. For example, cross-sectional analyses limited to the industry level can only investigate the role of industry characteristics (e.g., minimum efficient size, capital intensity) but not regional determinants such as population density or workforce qualifications. Without accounting for the regional dimension, however, in the case of such industry-level studies, reliable results cannot be attained if the importance of a certain factor, such as innovation conditions, varies significantly across regions. Additionally, if certain regional conditions stimulate new business formation in some industries but deter start-ups in other industries, the effect of space on the formation of new businesses cannot be adequately assessed by means of an interregional approach that does not account for different industries.⁵

Keywords

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This Chapter is based on Fritsch M, Falck O (2007) New Business Formation by Industry Over Space and Time: A Multidimensional Analysis. Regional Studies 41: 157–172. Reproduced with kind permission of Taylor & Francis, http://www.informaworld.com.

In this chapter, we use the term “new business” as the overall category for both new firm headquarters and new subsidiaries. Our empirical data include these two categories of new entities.

For an overview of cross-sectional studies of industries see Evans and Siegfried (1994) and Geroski (1995). The evidence of interregional analyses is summarized in Reynolds et al. (1994).

The only longitudinal analyses of new firm formation that we are aware of are Keeble et al. (1993), Johnson and Parker (1996), Sutaria (2001) as well as Sutaria and Hicks (2004).

Audretsch and Fritsch (1999) provide some empirical evidence on the industry component of regional new business formation processes.