Entrepreneurship, small businesses and economic growth in cities

Yong Suk Lee

Journal of Economic Geography, 2017, vol. 17, issue 2, 311-343

Abstract: Does entrepreneurship cause local employment and wage growth, and if so, how large is the impact? Empirical analysis of such a question is difficult because of the joint determination of entrepreneurship and economic growth. This article uses two different sets of variables—the homestead exemption levels in state bankruptcy laws from 1975 and the share of metropolitan statistical area (MSA) overlaying aquifers—to instrument for entrepreneurship and examine urban employment and wage growth between 1993 and 2002. Despite using different sets of instrumental variables, the ranges of two-stage least squares estimates are surprisingly similar. A 10% increase in the birth of small businesses increases MSA employment by 1.3–2.2%, annual payroll by 2.4–4.0%, and wages by 1.2–2.0% after 10 years. Furthermore, an accounting exercise shows that the employment and payroll growth from entrepreneurship are not confined to the initially created businesses but spillover to the aggregate urban economy.

Keywords: Entrepreneurship; homestead exemption; aquifers; urban growth; agglomeration benefits (search for similar items in EconPapers)
JEL-codes: K35 L26 O18 R11 (search for similar items in EconPapers)
Date: 2017
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Citations: View citations in EconPapers (15)

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