The role of agglomerations in the emerging performance and the early development of new establishments: evidence from Germany

This paper analyzes the emerging performance and early development of new establishments considering the role of agglomerations. It creates distinctions between the most commonly observed types of new businesses, namely startups, spinoffs, and new establishments that result from a change in proprietorship. The empirical analysis reveals that new establishments with higher productivity emerge in regions with higher population density, regardless of the foundation type. While at the end of the time period analyzed, new establishments in more densely populated regions still show higher productivity levels than those in less densely populated regions, an agglomeration's role depends on the foundation type. Indeed, while spinoffs in more densely populated regions tend to reflect the higher productivity levels shown in the first time period, the productivity premium of startups in agglomerations diminishes over time. This analysis emphasizes the relevance of location for the setup and early development of new ventures and, more importantly, the varying role of agglomerations conditioned by the characteristics of new businesses.