What determines entrepreneurial clusters?

Luigi Guiso () and Fabiano Schivardi ()

No ECO2007/48, Economics Working Papers from European University Institute

Abstract: We contrast two potential explanations of the substantial di¤erences in entrepreneurial activity observed across geographical areas: entry costs and external effects. We extend the Lucas model of entrepreneurship to allow for heterogeneous entry costs and for externalities that shift the distribution of entrepreneurial talents. We show that these assumptions have opposite predictions on the relation between entrepreneurial activity and .rm level TFP: with di¤erent entry costs, in areas with more entrepreneurs firms' average productivity should be lower and vice versa. We test these implications on a sample of Italian firms and unambiguously reject the entry costs explanation in favor of the externalities one. We also investigate the sources of external e¤ects, finding robust evidence that learning externalities are an important determinant of cross-sectional differences in entrepreneurial activity.

Keywords: Entrepreneurship; clustering; agglomeration economies (search for similar items in EconPapers)
JEL-codes: D24 D62 J23 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ent, nep-geo, nep-hrm and nep-ure
Date: Written 2007
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Working Paper: What determines entrepreneurial clusters? (2006)
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