Entrepreneurship and Industrial Re-Structuring: What Kinds of Start-Ups Matter Most for Job Creation

Abstract

We examine the effects of new business formation in a region on subsequent employment growth in that region, observing in particular the effects of different kinds of start-ups on employment change, and the lag structure of these effects. The study partitions entry rates into entry by large and small firms; foreign-owned and domestic-owned firms; and knowledge-based and other firms. In all cases results suggest that effects on new firm formation on subsequent employment change are different according to the type of entrant. Start-ups that are larger, foreign-owned and/or knowledge-based have considerably stronger effects on industrial re-structuring and employment change, whether due to market selection processes or supply-side spillovers. This finding has important implications for entrepreneurship policies at the regional and national levels.