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The Role of New Firms for the Development of Clusters

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  • Anne Otto

Abstract

New firms play an important role for the emergence and development of clusters. In recent years only a few studies have analyzed the (inter)relationship between entrepreneurship and clusters, but most of them have not taken into account the different development-stages of clusters. In accordance with the concept of industry life cycles the evolution of clusters can be seen as a series of several phases. In the first phase new firms build the critical mass for the emergence of a cluster. A growing cluster is characterized by an increase in employment due to the growth of existing firms and a rising number of new firms. In a self-sustaining cluster the number of start-ups corresponds with the number of closures. In contrast, clusters while declining experience a decrease in the number of new firms. The objective of this paper is to analyze the direct effects of new firms on the evolution of clusters. In the first part of my paper I will give an insight into different theoretical frameworks which discuss the role of entrepreneurship for the evolution of clusters. The second part of the paper shows the results of an empirical analysis about the relevance of newly founded firms for the economic development of clusters considering their different development stages. The ‘Establishment File’ of the German Social Insurance Statistics is used as data source for the number of firm foundings and closures and for the survival rates of young firms in Germany. This data source provides longitudinal data about the number of employees in firms. Thus, it is possible to study the employment growth of new firms. This paper compares entrepreneurial activity of industry clusters over the period 1983/84 to 2001/02. Firstly, intra-industry comparisons are performed for several regional clusters of the media, machinery, automotive and textile industry in West Germany as examples of different stages. In a second step, I contrast the aggregate results for the different industries. Finally I analyze the employment effects of start-up cohorts on the evolution of regional clusters in Germany.

Suggested Citation

  • Anne Otto, 2006. "The Role of New Firms for the Development of Clusters," ERSA conference papers ersa06p275, European Regional Science Association.
    • Handle: RePEc:wiw:wiwrsa:ersa06p275
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    1. Udo Staber, 2011. "Partners Forever? An Empirical Study of Relational Ties in Two Small-firm Clusters," Urban Studies, Urban Studies Journal Limited, vol. 48(2), pages 235-252, February.

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