Employment from new firm formation in the Netherlands: Agglomeration economies and the Knowledge Spillover Theory of Entrepreneurship

Abstract

Within the recent literature on the geography of new firm formation, much attention is given to the role of regional knowledge sources based on the Knowledge Spillover Theory of Entrepreneurship. At the same time, several other studies show the importance of agglomeration economies for new firm formation. The goal of this study is to assess the relative importance of these determinants for differences in the share of employment creation from new firms at the level of municipalities for the period of 1999–2006 in the Netherlands. It is found that the traditional drivers of new firm formation, such as economic growth and agglomeration effects, have a much stronger effect on new firm formation compared to measures of the regional knowledge base. Moreover, it is shown that when not correcting for the presence of agglomeration effects, the role of local knowledge resources is easily over-estimated, pointing to the dangers of misspecifications of models. The results imply that the knowledge spillover theory of entrepreneurship should, at least for the Netherlands, not be exaggerated.

Keywords:

• new firm formation
• entrepreneurship
• knowledge spillovers
• agglomeration effects

Notes

Notes

1. For the province of Friesland in the Netherlands the dataset is unreliable regarding new firm formation. This is due to the fact that, during the time period under investigation, several changes in the registration procedure were adopted in this province. Therefore, this relatively peripheral province – with only few linkages to other locations in the Netherlands – has been dropped from the analyses.

2. Due to the exclusion of the province of Friesland, 427 municipalities are used in the analyses.

3. Unless otherwise noted, all explanatory variables are based on data obtained from the Dutch Central Bureau of Statistics (www.cbs.nl).

4. This measure is calculated by taking: (1) the amount of employees with basis education only; (2) twice the number of employees with secondary education; and (3) thrice the number of employees with a tertiary education, summing these three numbers and dividing it by three (based on Raspe and Van Oort 2006). The resulting variable ranges from 1 (regions with only employees with basic education) to 3 (regions with only employees with tertiary education).

5. Testing and controlling for spatial dependency in municipal data has been done with an inverse quadratic distance weight matrix, which reflects the squared term of all centroid-to-centroid inter-municipal distances as the crow flies. Tests with other weight definitions (e.g. non-quadratic weight specifications) do not result in different outcomes (e.g. compare with Van Oort 2004).

6. The bias towards validating the knowledge spillover theory of entrepreneurship becomes even bigger when other groups of variables are excluded from the models as well as is evidenced by the alternative specifications reported in Appendix 2.

7. Similar analyses for only high-tech or knowledge intensive sectors cannot be performed due to the fact that the number of firms as well as start-ups in these sectors is too low to provide a suitable dataset for such analyses (i.e. too many zero's and very small denominators when calculating the relative employment from new firm formation).