Local Industrial Conditions and Entrepreneurship: How Much of the Spatial Distribution Can We Explain?

Why are some places more entrepreneurial than others? We use Census Bureau data to study local determinants of manufacturing startups across cities and industries. Demographics have limited explanatory power. Overall levels of local customers and suppliers are only modestly important, but new entrants seem particularly drawn to areas with many smaller suppliers, as suggested by Chinitz (1961). Abundant workers in relevant occupations also strongly predict entry. These forces plus city and industry fixed effects explain between sixty and eighty percent of manufacturing entry. We use spatial distributions of natural cost advantages to address partially endogeneity concerns.Entrepreneurship, Industrial Organization, Agglomeration, Labor Markets, Input-Output Flows, Innovation, Research and Development, Patents.

What Causes Industry Agglomeration? Evidence from Coagglomeration Patterns

Many industries are geographically concentrated. Many mechanisms that could account for such agglomeration have been proposed. We note that these theories make different predictions about which pairs of industries should be coagglomerated. We discuss the measurement of coagglomeration and use data from the Census Bureau’s Longitudinal Research Database from 1972 to 1997 to compute pairwise coagglomeration measurements for U.S. manufacturing industries. Industry attributes are used to construct measures of the relevance of each of Marshall’s three theories of industry agglomeration to each industry pair: (1) agglomeration saves transport costs by proximity to input suppliers or final consumers, (2) agglomeration allows for labor market pooling, and (3) agglomeration facilitates intellectual spillovers. We assess the importance of the theories via regressions of coagglomeration indices on these measures. Data on characteristics of corresponding industries in the United Kingdom are used as instruments. We find evidence to support each mechanism. Our results suggest that input-output dependencies are the most important factor, followed by labor pooling.

Entrepreneurship and Urban Growth: An Empirical Assessment with Historical Mines

Measures of entrepreneurship, such as average establishment size and the prevalence of start-ups, correlate strongly with employment growth across and within metropolitan areas, but the endogeneity of these measures bedevils interpretation. Chinitz (1961) hypothesized that coal mines near Pittsburgh led that city to specialization in industries, like steel, with significant scale economies and that those big firms led to a dearth of entrepreneurial human capital across several generations. We test this idea by looking at the spatial location of past mines across the United States: proximity to historical mining deposits is associated with bigger firms and fewer start-ups in the middle of the 20th century. We use mines as an instrument for our entrepreneurship measures and find a persistent link between entrepreneurship and city employment growth; this connection works primarily through lower employment growth of start-ups in cities that are closer to mines. These effects hold in cold and warm regions alike and in industries that are not directly related to mining, such as trade, finance and services. We use quantile instrumental variable regression techniques and identify mostly homogeneous effects throughout the conditional city growth distribution

Clusters of Entrepreneurship

Employment growth is strongly predicted by smaller average establishment size, both across cities and across industries within cities, but there is little consensus on why this relationship exists. Traditional economic explanations emphasize factors that reduce entry costs or raise entrepreneurial returns, thereby increasing net returns and attracting entrepreneurs. A second class of theories hypothesizes that some places are endowed with a greater supply of entrepreneurship. Evidence on sales per worker does not support the higher returns for entrepreneurship rationale. Our evidence suggests that entrepreneurship is higher when fixed costs are lower and when there are more entrepreneurial people.Entrepreneurship, Industrial Organization, Chinitz, Agglomeration, Clusters, Cities.

Local Industrial Conditions and Entrepreneurship: How Much of the Spatial Distribution Can We Explain?

Why are some places more entrepreneurial than others? We use Census Bureau data to study local determinants of manufacturing startups across cities and industries. Demographics have limited explanatory power. Overall levels of local customers and suppliers are only modestly important, but new entrants seem particularly drawn to areas with many smaller suppliers, as suggested by Chinitz (1961). Abundant workers in relevant occupations also strongly predict entry. These forces plus city and industry fixed effects explain between sixty and eighty percent of manufacturing entry. We use spatial distributions of natural cost advantages to address partially endogeneity concerns

Clusters of Entrepreneurship and Innovation

This paper reviews recent academic work on the spatial concentration of entrepreneurship and innovation in the United States. We discuss rationales for the agglomeration of these activities and the economic consequences of clusters. We identify and discuss policies that are being pursued in the United States to encourage local entrepreneurship and innovation. While arguments exist for and against policy support of entrepreneurial clusters, our understanding of what works and how it works is quite limited. The best path forward involves extensive experimentation and careful evaluation

Entrepreneurship and Urban Success: Toward a Policy Consensus

Like all politics, all entrepreneurship is local. Individuals launch firms and, if successful, expand their enterprises to other locations. But new firms must start somewhere, even if their businesses are conducted largely or exclusively on the Internet. Likewise, policymakers at local and state levels increasingly recognize that entrepreneurship is the key to building and sustaining their economies\u27 growth. Although this is a seemingly obvious proposition, it represents something of a departure from past thinking about how local, state, or regional economies grow. Historically, state and local policymakers have put their energies into trying to attract existing firms from somewhere else, either to relocate to a particular area or to build new facilities there. Such smokestack chasing - or, in this cleaner era, simply firm chasing - often has degenerated into what is essentially a zero-sum game for the national economy. When one city or state offers tax breaks or other financial inducements to encourage firms to locate new plants or headquarters, and succeeds, some other city or state loses out in the process. Local, state, and regional economic development centered on entrepreneurship, however, is a fundamentally different phenomenon. The formation and growth of new firms, especially those built around new products or ways of doing things, wherever this occurs, is clearly a positive sum game, not just for the locality, but for the nation as a whole. This essay provides a guide to policymakers and citizens to what is known about the effects of various local and state policies aimed at fostering entrepreneurially driven growth. There is also much we do not know; thus, the essay identifies subjects that require further research

From Russia with Love: The Impact of Relocated Firms on Incumbent Survival

We identify the impact of local firm concentration on incumbent performance with a quasi natural experiment. When Germany was divided after World War II, many firms in the machine tool industry fled the Soviet occupied zone to prevent expropriation. We show that the regional location decisions of these firms upon moving to western Germany were driven by non-economic factors and heuristics rather than existing industrial conditions. Relocating firms increased the likelihood of incumbent failure in destination regions, a pattern that differs sharply from new entrants. We further provide evidence that these effects are due to increased competition for local resources

Separate worlds? Explaining the current wave of regional economic polarization

Inter-regional and inter-metropolitan economic divergence is greater in many western developed countries than it has been in many decades. Divergence manifests itself in many ways, including per capita income, labor force participation, and the spatial the distribution of skills and returns to education. At the same time, geographical polarization of political preferences and electoral choices has increased, with gains in populism and nationalism in some regions, and broadening of socially liberal, pro-trade, and multicultural attitudes in other regions. The task of explaining these developments poses challenges to economic geography and regional and urban economics. These fields have already developed some of the building blocks of an account, but a number of important gaps persist. This article is devoted to identifying priorities for regional science and urban economics, the new economic geography, and proper economic geography to tackle the key mechanisms behind divergence as well as to integrate them in a common overall framework