Abstract
This paper investigates whether a high level of new business formation in a region stimulates employment growth in that region. We look at the lag structure of these effects using a data set covering a fairly large time span (1982–2002). We find that indirect effects of new firm births on subsequent employment growth are stronger than direct effects. However, indirect effects only occur about 8 years after new firm formation. In particular, and unlike the findings from studies of other countries using a similar approach, positive indirect effects do not seem to tail off in the Portuguese case. This is likely due to a general pattern of results in which lags appear to be longer for Portugal. In view of these results, we suggest that the lag times and magnitudes the effects on new firm formation on subsequent employment growth are likely dependent on the types and qualities of start-ups.
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Notes
The database is property of the Portuguese government and can be accessed on-site at the Observatory of the Ministry of Labour and Social Solidarity. The database is presented in more detail in Escária and Madruga (2002).
Start-ups do include new branch plants by existing firms, so all new establishments are included. NACE A and NACE B (agriculture, hunting and forestry; and fisheries) are excluded— so we have all new establishments in manufacturing and services.
Fritsch and Mueller (2004) use data for 326 West German districts (kreise).
Calculated from the sector-adjusted number of start-ups—see Eq. 3—using the labour market approach.
The control variable was found not to be statistically significant in most regressions. Estimations were also carried out using each of the two variables—population density and per capita GDP—separately, reaching similar results.
Coefficients for time dummies were mostly significant. Results are not reported here but are available from the authors upon request.
Huber-White-Sandwich robust estimation takes into account variations in employment growth within and between regions over time simultaneously, being therefore preferable to fixed effects estimation.
Results for other lag structures are available from the authors upon request.
The lag structures for lower order polynomials are all approximately u-shaped.
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Acknowledgements
The authors would like to thank David Audretsch, Michael Fritsch, Pamela Mueller, André van Stel, David Storey, A. Roy Thurik, and participants at the 2005 IECER Conference at the University of Amsterdam, as well as at the Workshop on Long Term Effects of New Business Formation at the Max Planck Institute of Economics, Jena, July 2005. Rui Baptista gratefully acknowledges support from Portuguese Foundation for Science and Technology (FCT).
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Baptista, R., Escária, V. & Madruga, P. Entrepreneurship, regional development and job creation: the case of Portugal. Small Bus Econ 30, 49–58 (2008). https://doi.org/10.1007/s11187-007-9055-0
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DOI: https://doi.org/10.1007/s11187-007-9055-0