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Start-up intensity, competition and regional economic development

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  • Sierdjan Koster
  • Andrè van Stel
  • Mickey Folkeringa

Abstract

We investigate the impact of start-up rates on regional economic development. We argue that in line with Schumpeter's view this effect is mediated by a process of creative destruction: Start-ups spark a process of creative destruction which in turn leads to regional economic development. Koster et al. (2010) investigate the former relationship. This paper focuses on the latter. Interactions between new and incumbent firms play an important role in the process of economic growth, and more knowledge on these interactions is required. Our paper fits in a recent strand of empirical research at the regional level (see Fritsch, 2008, for a survey) which suggests that competition among incumbent firms is caused by (lagged) start-up rates. Contrary to earlier research the present paper employs a direct measure of the level of competition between incumbents, which is called mobility (Cantner and Krüger, 2004). The mobility rate measures to what extent the relative performance of firms (with respect to each other) in a market changes over time. Based on Joseph Schumpeter's theory of creative destruction we hypothesise that the mobility rate positively influences regional economic development. New firms challenge existing firms by introducing new products and services and market selection will cause the best firms to survive and grow and the least competitive firms to downsize or exit. In the present paper we test our hypothesis by estimating a regression model at the region - sector level for the Netherlands, where regional economic development (employment growth) is explained by the mobility measure, (lagged) startup rates and control variables. In order to mitigate endogeneity problems we adopt a 2SLS approach.

Suggested Citation

  • Sierdjan Koster & Andrè van Stel & Mickey Folkeringa, 2011. "Start-up intensity, competition and regional economic development," ERSA conference papers ersa10p556, European Regional Science Association.
    • Handle: RePEc:wiw:wiwrsa:ersa10p556
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    References listed on IDEAS

    as
    1. Sierdjan Koster & André Stel & Mickey Folkeringa, 2012. "Start-ups as drivers of market mobility: an analysis at the region–sector level for The Netherlands," Small Business Economics, Springer, vol. 39(3), pages 575-585, October.
    2. Mickey Folkeringa & Andre Van Stel & Kashifa Suddle & Sita Tan, 2011. "Measuring business dynamics among incumbent firms in The Netherlands," International Journal of Entrepreneurship and Small Business, Inderscience Enterprises Ltd, vol. 12(2), pages 185-206.
    3. Adriaan Van Stel & Henry Nieuwenhuijsen, 2004. "Knowledge Spillovers and Economic Growth: An Analysis Using Data of Dutch Regions in the Period 1987-1995," Regional Studies, Taylor & Francis Journals, vol. 38(4), pages 393-407.
    4. André Stel & Kashifa Suddle, 2008. "The impact of new firm formation on regional development in the Netherlands," Small Business Economics, Springer, vol. 30(1), pages 31-47, January.
    5. Michael Fritsch, 2008. "How does new business formation affect regional development? Introduction to the special issue," Small Business Economics, Springer, vol. 30(1), pages 1-14, January.
    6. Michael Fritsch & Pamela Mueller, 2004. "Effects of New Business Formation on Regional Development over Time," Regional Studies, Taylor & Francis Journals, vol. 38(8), pages 961-975.
    7. Baldwin, John R & Gorecki, Paul K, 1994. "Concentration and Mobility Statistics in Canada's Manufacturing Sector," Journal of Industrial Economics, Wiley Blackwell, vol. 42(1), pages 93-103, March.
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