Abstract
We investigate persistence and change of regional new business formation in West Germany over a period of 30 years. Our indicator is the position of a region in the national ranking. We confirm the role of several sources of this persistence, namely, persistence in regional determinants of new business formation and path dependence in new business formation activity. The results for the role of a distinct regional culture of entrepreneurship are, however, ambiguous. Main factors that are related to changes in the national ranking are the employment share in small businesses, the share of manufacturing employment and a relatively low regional wage level. R&D activities are also conducive for new business formation but become effective only with a time lag.
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Notes
The exception is Fotopoulos and Storey (2017).
One of the transmission mechanisms of an entrepreneurial culture could be the well-documented transfer of positive entrepreneurial attitudes in the regional population across generations (Laspita et al. 2012). Moreover, a large number of self-employed persons in a region may reinforce a regional culture of entrepreneurship through demonstration and peer effects. Such role models provide a non-pecuniary externality that reduces ambiguity and influences the decision to pursue an entrepreneurial career (Minniti 2005). Furthermore, observing active entrepreneurs, especially successful ones, may increase social acceptance of entrepreneurship and self-confidence of people in regard to their ability to successfully set up an own business (Stuart and Sorensen 2003; Bosma et al. 2012; Kibler et al. 2014).
Fotopoulos and Storey (2017), in their study of entrepreneurship in regions of the UK between 1921 and 2011, use self-employment rates. Fritsch and Wyrwich (2014) relate self-employment rates in the year 1925 to start-up rates in the period 1984–2006. Andersson and Koster (2011) and Fritsch and Mueller (2007) analyze the development of regional gross entry over time but for shorter time periods.
Changes of self-employment or start-up rates and changes of rank positions are conceptually different. If all regions would show the same change of the rates their positions in the national league table would remain the same and the changes of rank positions would be always zero. For a detailed comparison of self-employment rates and rank positions see, Fotopoulos and Storey (2017).
For example, start-up rates are higher in service industries than in manufacturing industries. This means that the relative importance of start-ups and incumbents in a region may be confounded by the composition of industries in that region. This would result in an overestimate of the level of entrepreneurial activity in regions with a high composition of industries where start-ups play an important role and an underestimate of entrepreneurship in regions with a high composition of industries for which new firm start-ups are relatively unimportant. To correct for the confounding between the regional composition of industries with the relative importance of start-ups and incumbent enterprises, a shift-share procedure is implemented to develop a measure of sector-adjusted start-up activity. See the Appendix of Audretsch and Fritsch (2002) for details.
We find that this procedure leads to somewhat clearer results and higher shares of explained variance than estimates with the non-adjusted start-up rate. However, the basic relationships are left unchanged.
Data on regional wage levels are taken from the Integrated Employment Biographies Sample of the Institute for Employment Research (IAB) at the Federal Employment Agency (see: http://fdz.iab.de/en/FDZ_Individual_Data/Integrated_Employment_Biographies.aspx).
Performing these analyses at the level of 326 West German districts does not lead to any clearer results. The probable reason is that districts do not represent functional regions being considerably smaller than labor market regions.
We restrict our analysis to West Germany because many empirical studies indicate that the East German economy in the 1990s was a special case with very specific conditions that cannot be directly compared to those of West Germany (Fritsch and Wyrwich 2014). There are actually 74 West German planning regions. For administrative reasons, the cities of Hamburg and Bremen are defined as planning regions even though they are not functional economic units (Federal Office for Building and Regional Planning 2003). To avoid distortions, we merged these cities with adjacent planning regions. Hamburg has been merged with the region of Schleswig-Holstein South and Hamburg-Umland-South. Bremen has been merged with Bremen-Umland. Thus, the number of regions in our sample is 71.
It is quite remarkable that we do not find any statistical relationship of the overall start-up rate with the shares of innovative manufacturing start-ups or new businesses in knowledge-intensive services. This means that regions with a relatively high or low start-up rate do not have high or low shares of new businesses in such innovative industries. Calculating Moran’s I for the different years indicates some weakly significant positive spatial autocorrelation in the years 1996/77 but not in the other periods.
A Moran’s I test indicates some weakly significant positive spatial autocorrelation of the changes between the first and the last years of our observation period.
Including both, levels and changes into one model does not lead to meaningful results due to high correlations among some of the variables. We also abstain from including indicators for rank position in the 1976/77 period into the model due to their pronounced correlation with the determinants of new business formation. LR tests clearly indicate that the assumption of constant coefficients across categories cannot be rejected.
The rationale for the slight overlap of the regions with a median position and the groups of regions at the top and at the bottom of the distribution is to have a sufficiently large number of observations in the three groups.
For an overview see Fritsch and Wyrwich (2019).
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Acknowledgements
We are particularly grateful to Udo Brixy, Georgios Fotopoulos, Francesca Melillo, David J. Storey, Alina Sorgner, Michael Wyrwich and three anonymous referees for helpful comments and suggestions. Financial support from the German Research Foundation (DFG RTG 1411) is gratefully acknowledged.
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The work of author Sandra Kublina on this paper benefitted from a Grant of the German Research Foundation (DFG); Grant no. DFG RTG 1411.
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Fritsch, M., Kublina, S. Persistence and change of regional new business formation in the national league table. J Evol Econ 29, 891–917 (2019). https://doi.org/10.1007/s00191-019-00610-5
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DOI: https://doi.org/10.1007/s00191-019-00610-5