Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/45134
Authors: 
Gries, Thomas
Naudé, Wim
Year of Publication: 
2008
Series/Report no.: 
Research paper / UNU-WIDER 2008.70
Abstract: 
Start-ups of new firms are important for economic growth. However, start-up rates differ significantly between countries and within regions of the same country. A large empirical literature studies the reasons for this and attempts to identify the regional determinants of start-ups. In contrast, there is a much smaller theoretical literature that attempts the formal modelling of the start-up process within a region. In this paper, we attempt to contribute to this small literature by introducing a general theoretical model of the entrepreneurial startup process. The model links start-ups to economic growth and can be applied to understand growth in a regional context. We derive five propositions that fit the stylized facts from the empirical literature: (i) growth in the regional economy is driven by an expansion in the number of start-up firms that supply intermediate goods and services; (ii) improvements in human capital will enhance the rate of start-ups; (iii) improvements in the relative rates of return to entrepreneurs and business conditions will raise start-up rates; (iv) an increase in regional financial concentration will reduce the start-up rate in a region and; (v) increased agglomeration/urbanization in a region has an a priori ambiguous effect on start-up rates.
Subjects: 
start-ups
entrepreneurship
frictions
economic growth
JEL: 
M13
O12
O40
L26
ISBN: 
978-92-9230-124-8
Document Type: 
Working Paper

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