Defining and Tracking Business Start-Ups

Abstract

This paper addresses a curious disjuncture between one aspect of regional development theory and the empiricism required to test its implications.On the one hand, researchers long have argued that firm births fuel the growth and development of regional economies. Just as long, however, they have employed different, often ad hoc, approaches to the definition and measurement of key concepts and relationships. The inconsistency among the studies in this literature creates a validity problem. We begin by providing an omnibus definition of a start-up that applies to some degree to all the articles we reviewed, namely, that it is new, active, and independent. We explain why all three criteria should be applied, rather than a subset. Second, we review the data sources that are commonly used to identify start-ups, and compare them using seven criteria. We conclude that ES202 data is the best source. Third, we develop a step-by-step tracking system for identifying new firms. By matching ES202 files from two different years and applying direct enumeration techniques, it is possible to identify newly created establish-ments during that time period with accuracy. This article serves both to explain the differences among the published studies of new firms and economic development, and to provide a common standard that can enhance the validity of future work on the topic.