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Are More Start-Ups Really Better? Quantity and Quality of New Businesses and Their Effect on Regional Development

Michael Fritsch and Alexandra Schroeter

No 2009-070, Jena Economics Research Papers from Friedrich-Schiller-University Jena

Abstract: Empirical analyses suggest that the employment creating effect of start-ups is highest in regions with a low level of new business formation and that an increase in the regional start-up rate beyond a certain level may lead to negative employment effect. In explaining these results, we assume that the average quality of regional start-ups decreases with the number of start-ups, while the costs of the induced resource reallocation increase. Our model implies that it is not the number of start-ups but their quality that is decisive for their effect on economic development. Therefore, a policy aiming at stimulating economic growth through entrepreneurship should focus on high-quality start-ups.

Keywords: Entrepreneurship; new business formation; regional development; entrepreneurship policy (search for similar items in EconPapers)
JEL-codes: L26 M13 O1 O18 R11 (search for similar items in EconPapers)
Date: 2009-08-13
New Economics Papers: this item is included in nep-ent, nep-geo, nep-sbm and nep-ure
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