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Entrepreneurship, small businesses and economic growth in cities

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  • Yong Suk Lee

Abstract

Does entrepreneurship cause local employment and wage growth, and if so, how large is the impact? Empirical analysis of such a question is difficult because of the joint determination of entrepreneurship and economic growth. This article uses two different sets of variables—the homestead exemption levels in state bankruptcy laws from 1975 and the share of metropolitan statistical area (MSA) overlaying aquifers—to instrument for entrepreneurship and examine urban employment and wage growth between 1993 and 2002. Despite using different sets of instrumental variables, the ranges of two-stage least squares estimates are surprisingly similar. A 10% increase in the birth of small businesses increases MSA employment by 1.3–2.2%, annual payroll by 2.4–4.0%, and wages by 1.2–2.0% after 10 years. Furthermore, an accounting exercise shows that the employment and payroll growth from entrepreneurship are not confined to the initially created businesses but spillover to the aggregate urban economy.

Suggested Citation

  • Yong Suk Lee, 2017. "Entrepreneurship, small businesses and economic growth in cities," Journal of Economic Geography, Oxford University Press, vol. 17(2), pages 311-343.
    • Handle: RePEc:oup:jecgeo:v:17:y:2017:i:2:p:311-343.
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    File URL: http://hdl.handle.net/10.1093/jeg/lbw021
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    Citations

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    Cited by:

    1. Neil Lee & Andrés Rodríguez-Pose, 2021. "Entrepreneurship and the fight against poverty in US cities," Environment and Planning A, , vol. 53(1), pages 31-52, February.
    2. Nicholas Kacher & Luke Petach, 2021. "Boon or Burden? Evaluating the Competing Effects of House-Price Shocks on Regional Entrepreneurship," Economic Development Quarterly, , vol. 35(4), pages 287-304, November.
    3. Park, Timothy A. & Holmes, Marionette, 2024. "Innovative Business Practices and the Productivity of Rural Establishments: Identifying Frontier Performers," 2024 Annual Meeting, July 28-30, New Orleans, LA 343903, Agricultural and Applied Economics Association.
    4. Yuan Wang, 2022. "Uncertainty, entrepreneurship, and the organization of corruption," Small Business Economics, Springer, vol. 58(1), pages 121-139, January.
    5. Kwangchul Ji & Hong-Youl Ha, 2021. "Empirical Evidence of Risks of Public-Loan Finance: Comparison between Self-Employers and SMEs," Sustainability, MDPI, vol. 13(11), pages 1-21, June.
    6. Alfredo Monte & Sara Moccia & Luca Pennacchio, 2022. "Regional entrepreneurship and innovation: historical roots and the impact on the growth of regions," Small Business Economics, Springer, vol. 58(1), pages 451-473, January.
    7. Tavassoli, Sam & Obschonka, Martin & Audretsch, David B., 2021. "Entrepreneurship in Cities," Research Policy, Elsevier, vol. 50(7).
    8. Arash Ketabforoush Badri & Mohhamadreza Nahidi & Mehrdad Ghalami, 2018. "The Effects of Entrepreneurship and Education on Economic Growth in Selected Countries," Noble International Journal of Social Sciences Research, Noble Academic Publsiher, vol. 3(7), pages 46-54, July.
    9. Amy Rader Olsson & Hans Westlund & Johan P. Larsson, 2020. "Entrepreneurial Governance and Local Growth," Sustainability, MDPI, vol. 12(9), pages 1-16, May.
    10. Mikaela Backman & Janet E. Kohlhase, 2022. "Labor force diversity and new firm formation," The Annals of Regional Science, Springer;Western Regional Science Association, vol. 68(1), pages 9-28, February.
    11. Thomas Neumann, 2021. "The impact of entrepreneurship on economic, social and environmental welfare and its determinants: a systematic review," Management Review Quarterly, Springer, vol. 71(3), pages 553-584, July.

    More about this item

    Keywords

    Entrepreneurship; homestead exemption; aquifers; urban growth; agglomeration benefits;
    All these keywords.

    JEL classification:

    • L26 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Entrepreneurship
    • K35 - Law and Economics - - Other Substantive Areas of Law - - - Personal Bankruptcy Law
    • O18 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Urban, Rural, Regional, and Transportation Analysis; Housing; Infrastructure
    • R11 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Regional Economic Activity: Growth, Development, Environmental Issues, and Changes

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