Long-term effects of new firm formation by type of start-up

Abstract

We examine the regional effects of new business formation on subsequent employment growth, observing in particular the effects of different kinds of start-ups on employment change, and the lag structure of these effects. We differentiate new firms according to three criteria: 1) size; 2) presence of foreign capital; 3) incorporation of knowledge/technology. In all cases, results suggest that effects on new firm formation on subsequent employment change are significantly different according to the type of start-up. Start-ups that are larger, foreign-owned, and knowledge-based have considerably stronger effects on industrial re-structuring and employment change, whether due to market selection processes or supply-side spillovers. The results therefore suggest that recognising the types of entrants that generate greater impacts on employment growth is of foremost importance for the design of public policies towards entrepreneurship.