New Business Formation and Regional Development: A Survey and Assessment of the Evidence

This monograph reviews the current state of knowledge about the effects of new business formation on regional development. These effects are diverse and include the creation and destruction of employment, introduction of innovations, structural change, and increasing productivity, among others. Theory particularly emphasizes the role that some new businesses play in the diffusion of knowledge and innovation as drivers of economic growth. I provide an explanatory approach that highlights the competitive challenge that start-ups pose to incumbent firms and discuss important implications. The overview of empirical research particularly deals with the development of start-up cohorts, identification of different types of indirect effects and their magnitude, differences based on characteristics of entry, and regional variation. A general conclusion is that the diverse indirect effects of new business formation on development are much more important than the growth effects created by newcomers. The diverse indirect effects of entry on development are currently less than fully understood. Finally, I draw conclusions for policy and put forward a number of important questions for further research.