Entrepreneurship and Regional Growth : Exploration into the Determinants of the Employment Effects of New Business Formation
Economic growth is a key issue in economic research and a primary concern in economic policy making. After World War II, Western economies experienced historically high rates of economic growth. However, following the first oil crisis in 1973, a period of stagflation set in and in the 1980s, stagflation and high unemployment rates required new solutions for stimulating economic growth. The search for these led to a renewed interest in supply-side economics and its underlying factors. Around the same time – the early 1980s – interest in new business formation received a huge boost, in large part due to research conducted by one individual – David Birch. His claim that it is not large corporations, but young and small firms that are the main sources of new jobs (Birch, 1981) generated a fervent debate as well as a surge of scientific research, which led to a reevaluation of the role of small firms and, especially, of entrepreneurship for economic development. Today, it is widely acknowledged that entrepreneurship is a key element of economic dynamism and, as such, lies at the root of economic prosperity (Acs et al., 2009; Audretsch and Keilbach, 2004a–c; Wennekers, 2006; see also OECD, 1998, 2004a, b; European Commission, 2003). Therefore, promoting entrepreneurial activity has become a central aspect of economic growth policy in many countries (Audretsch et al., 2006; Lundström and Stevenson, 2005). The body of knowledge regarding the entrepreneurial process has expanded rapidly during the last two decades, but there are still gaps in the research that need to be filled to ensure a understanding of the relationship between entrepreneurship and (regional) economic development. This thesis contributes to the literature on the role entrepreneurial activity plays in regional growth by investigating the causal mechanism between new business formation and regional employment growth. To this end, two main determinants of the magnitude of employments effects induced by new business formation are analyzed. First, the influence of regional characteristics on the employment contribution of start-ups is examined. This is complemented by, second, an investigation of the role new firms’ quality play for the size of the employment contribution induced by new ventures.