Regional patterns and determinants of birth and survival of new firms in Western Germany

Abstract

Although there is a large body of literature on the determinants of regional variation in new firm formation little is known on the spatial differences in new firm survival. The often-stated positive relationship between entry and exit suggests a negative correlation between entry and survival. On the other hand it seems convincing that regions with high birth rates should also have high survival rates, because a favourable environment for the founding of new firms should also stimulate the development of these firms. However, our analysis reveals an overall negative relationship. In detail the spatial pattern of a combination of both rates is complex, and all types of possible relationships exist. We analyse the factors that influence regional birth and survival rates of new firms for 74 West German regions over a 10-year period. It is shown that in the service sector most variables literally work in opposite directions in the birth and survival rates models. The spatial structures which promote the formation of new service firms are detrimental to the survival of these firms. This does not hold for the manufacturing sector where we find evidence for the ‘supportive environment thesis’. Obviously both industries have different requirements for their ‘seed bed’ but not for their survival.